Recommendation 5

HMRC has spent too much of its IT budget on patching up legacy systems rather than modernising them. The COVID-19 pandemic has shown the importance of an effective tax administration system. There is a strong case for investment in a modern IT system. Of the additional costs incurred by HMRC as a consequence of the pandemic, the largest element, as of 11 September 2020, was the cost of IT at £53.2 million (80%). HMRC says that it has made some progress in its ambitious digital transformation but is looking for opportunities to reduce the risks facing its IT systems so that they are kept up to date and safe from cyber-attacks and HMRC performance 2019–20 7 catastrophic losses. The Department accepts it should redress the balance between spending too much on legacy systems and not enough on investing for the future. Since we took evidence, HMRC secured £268 million in the November 2020 Spending Review to fix its outdated IT, to ensure its core systems are secure and support better administration. It remains to be seen whether this is sufficient to urgently address the long-standing issues the Department has identified. Recommendation: HMRC should write to us, by the end of March 2021, setting out what it is doing, and has planned, to refocus IT investment on modernisation for the future, while retaining resilience, so it can move on from the need to simply keep patching up legacy systems.