Her Majesty’s Revenue & Customs (HMRC) held its annual stakeholder conference this week, which saw a number of senior figures at the organisation and across government give some insight into the tax authority’s future challenges and opportunities.
Digital ambitions were at the top of the agenda, as was as a clear message to companies that use tax avoidance schemes that their luck may be running out, as HMRC looks to further clamp down on such activity.
The issue of paying a fair amount of tax is increasingly becoming a top priority for the authority, as large international companies, particularly those that operate mostly on the internet, do what they can to pay minimal amounts. The likes of Facebook, Amazon and Apple have all been in the firing line in Europe.
However, it was largely HMRC’s plans for online tax accounts and making tax digital that caught the attention on the day. Although one user on Twitter did point out the irony of it handing out a print out of its annual report:
— Jonathan Riley (@JONATHAN_RILE) September 5, 2016
But if we ignore that, HMRC was keen to highlight its progress in becoming one of the “most digitally advanced tax administrations in the world”. This follows last years budget, which saw then Chancellor of the Exchequer George Osborne commit £1.3 billion to transform the tax authority’s systems, so that most individuals and businesses are carrying out all their interactions with the organisation online by 2020.
Whilst a lot of people submit and pay their tax online at present, the systems are incredibly clunky, difficult to use and aren’t intuitive for those that don’t have the resources to outsource the problem to an accountant.
Recently appointed Financial Secretary to the Treasury, Jane Ellison MP, told stakeholders at the conference that the government was committed to creating a tax service for the 21st century, which she said was a “bold vision for the future”.
It is these three priorities – making sure tax is fair, paid and competitive – which will remain at the heart of what this Government delivers on tax. But what I’m also really excited about taking forward, is our plan to establish one of the best digital tax services in the world.
Offering businesses and individuals alike the kind of digital services they expect in the 21st century. Now I know it’s not the case for everyone – and for those who can’t get online, we will make special provisions. But I’m sure that most people – in this room, and in this country – are used to doing both their personal, and their business admin, online.
And it’s just not right that our tax service should lag behind – stuck in an age of paperwork, letters and phone calls. That’s why we want HMRC to offer all our customers a top quality, fully digital service alongside its existing services
The government have made the big billion pound investment to do it.
And in HMRC, not to mention all the other businesses and organisations represented in this room, we’ve got the talent, know-how and determination to do it.
So at a future HMRC annual conference, what I’ll expect to be saying is that “we have done it”.
Despite HMRC’s optimism, it shouldn’t be ignored that the organisation has an incredibly difficult task ahead of it in pivoting towards becoming digital. For over ten years HMRC has been locked into its Aspire outsourcing contract, which has seen Capgemini and Fujitsu manage the authority’s IT systems for the princely sum of approximately £800 million per year.
Not only is it difficult for HMRC to bring the technology back ‘in-house’, but as with any outsourcing agreement on this scale, skills and knowledge of tech management have also been lost for years. As a result, HMRC is also having to work hard to insource the right people to support becoming a truly digital organisation.
This was highlighted by government watchdog the National Audit Office, which said that HMRC’s plan to phase out its decade-long contract presents “significant risks” to the tax authority’s strategy. It said that it needed to focus on building the right commercial and technical capabilities to manage the shift.
Which is why when HMRC’s Chief Digital and Technology Officer Mark Dearnley announced that he would be quitting in September to return to the private sector, many were concerned. Dearnley is the Senior Responsible Officer for the Aspire contract.
That being said, because of HMRC’s scale and prominence in Whitehall, it has been more successful than some other departments in beefing up its digital in-house skills and capability.
However, the Financial Secretary went on to tell stakeholders yesterday that despite the challenges, the rewards will be great for those that conduct their tax affairs online in the future. Ellison said:
It’s a bold vision for the future. But we’ll have made life more straightforward for millions of people and businesses. Everyone will be able to log into their accounts online, at any time, from any of their devices.
They’ll be able to see exactly what their situation is – whether it’s about their income tax, student loan repayments, national insurance contributions – you name it. They’ll be able to add information on their income and expenses, throughout the year, as they go along.
And they’ll know what they owe as they go along – not get any, nasty or nice, surprises when the annual tax bill drops through the letterbox. They will even be able to spread their payments by just paying as they go, if that’s easier for them.
I know this is a big change.
Last week we saw the European Commission take on Apple for its tax affairs in Ireland, where the EC hit the technology giant with a record breaking €13bn tax bill. An EC investigation found that Ireland had granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years. Apple and Ireland deny this is the case.
However, this isn’t an isolated incident in many respects. The problem of companies paying low tax in Europe, including the UK, has been getting increased media attention of late. For example, Facebook faced a backlash for paying just £4,317 in UK tax in 2014. Whilst a deal was struck between the government and Google recently, which will see it pay £130 million in back-dated taxes for the past 10 years to HMRC.
Financial Secretary Ellison also addressed this issue at the conference yesterday, stating that HMRC is making moves to tackle the problem and said that because of the changes in approach businesses are seeing tax avoidance as less of an attractive proposition. She said:
We also want to make sure that the tax that is due – is paid. We’re doing this both by making it easier for the honest majority to get their taxes right, and by making it harder for the dishonest minority to cheat the system.
And actually, what I think we’re seeing today is a big culture shift when it comes to tax. In fact HMRC’s latest survey on attitudes to tax bears this out. Because it shows that big businesses are increasingly adopting the mind-set that attempts to avoid tax just aren’t acceptable. Indeed, it can be counterproductive.
And I want to pay tribute to everyone in HMRC and in this room for helping to bring about that change. Because the Department is really leading the way on tackling tax evasion and avoidance in any form, through a huge range of innovative initiatives.
From fining those advisers who help their clients avoid tax. To increasing sanctions against the most persistent offenders in the hidden economy. And I’m also delighted to announce today that we have collected £3 billion since 2014 from people using avoidance schemes, as HMRC put its new powers to use by issuing ‘accelerated payment notices’ to good effect.
That’s £3 billion raised to deliver our public services.
Lots of good ideas, but still plenty of delivery to be done. Good online tax systems are an obvious solution for many people and businesses. However, given HMRC’s current set-up with Aspire and the complexities that that brings, there is a long and challenging road ahead. With skills and in-house capability being the number one priority.
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