HM Revenue and Customs (HMRC) should focus on developing its data and analytics capability to better manage tax debt through the pandemic, according to a new report published by the National Audit Office (NAO).
The report focuses on the wider economic impact of the pandemic, and the tax department’s decision to suspend most debt collection, which has led to large increases in the amount of tax owed to HMRC. According to the research, debt peaked at £67bn in August 2020, including deferred payments, far exceeding levels seen in the previous decade.
Analysing how HMRC has managed tax debt through Covid-19, the report looked at areas such as the department’s capacity and capability to manage tax debt, and to understand the impact of the pandemic on taxpayers’ ability to settle tax debt.
Among the points raised in the report’s section on developing tools and capability is HMRC’s need to evolve on the data analytics front. According to the NAO, HMRC is restricted in its ability to increase capacity in the short term, but should look into evolving it in the long term, to better manage the range of taxpayers’ needs it encounters.
Among the recommendations, the NAO urges HMRC to consider new tools to support debt management, such as data analytics in planning for the new Spending Review (SR) period. In the latest SR, HMRC was among the departments to receive a boost for IT initiatives.
HMRC’s settlement provides for a £900m cash increase to £5.2bn in 2024-25, with digitisation of tax being one of its core priorities. According to the SR, the settlement will support the extension of initiatives such as Making Tax Digital. A further £136m will be invested over the SR21 period to deliver the Single Customer Record and Account, a project to centralise taxpayers’ affairs online.
Customer-facing systems such as online tools for setting up payment arrangements for business customers are among the other areas HMRC should look at, according to the NAO report.
The NAO also noted that HMRC’s existing data tools and interventions and their integrations should be reviewed. “Process mapping and data-mining techniques can help it better plan a long-term strategy for reducing debt, allocate resources to where they are most effective and put in more resources where needed,” said the report.
In a separate NAO report, also published this month, concerns were raised about HMRC’s IT transformation plans, as issues related to legacy, Covid-19 and Brexit place extra strain on the department.
Among the issues raised, the NAO stressed that HMRC had significant levels of technical debt in 2019-20, the risk associated with IT legacy. The report also noted the tax department’s report that, in 2020-21, the age and extent of its legacy IT presented challenges for its compliance with the General Data Protection Regulation and associated data security obligations.
