Her Majesty’s Revenue and Customs (HMRC) has been given a budget of £1.3 billion by the Treasury to ‘make tax digital’ over the next five years. No small task, given that HMRC has historically relied on outsourcing agreements, leaving it with a dearth of skills internally, and has complex array of ageing legacy systems.
However, HMRC’s ambition is to become the most digitally advanced tax authority in the world and has been working to build up its internal capability and create a more digital, agile environment. If successful, the benefits could both include a more useful experience for individuals and businesses, as well as a drop in costs for the department.
Hardik Shah, Deputy Director, Chief Digital and Information Officer group, HMRC, was speaking at SAP’s Innovation Forum in London this week, where he provided a useful top level overview for the department’s plans, an update on its progress, and gave some insight into where it is placing its priorities.
Albeit there were some caveats - there was no mention of the challenges of exiting the lengthy outsourcing agreements, nor was there any acknowledgement of the questions raised by MPs about the costs/difficulties that the new digital system could introduce.
Shah explained that £536 billion of revenue is collected by HMRC every year and that this is the amount that flows through its IT systems. He said that with the Treasury’s £1.3 billion investment over five years, HMRC hopes to reduce its baseline costs by 15%.
The department also hopes to increase its tax revenue each year by £5 billion, as a result of the digital transformation. Shah said that the focus is very much on “sustainable savings”, which it expects to get £717 million each year, 25% of which will come from IT.
It hopes to also bring post and phone contact down by 55%, by going digital by default.
We have adopted a multi channel approach. Social media is there, it’s a fact. We are making optimal use of social media - Twitter is our main focus. Our focus is on reducing one to one communication, so we are going from one to many communication.
With a phone call or a printed letter it can only be one to one. With web chat our standard is three web chat sessions simultaneously. Some of our more experienced staff do four or five. We have all the tools that are available to our web chat operators - there is no shifting through spreadsheets - and we have streamlined our IT processes and systems to allow for that to happen.
However, Shah was keen to highlight that HMRC recognises that digital “isn’t for everyone” and that some people might not have access to digital technologies, or might not be able to use them. As a result, for those customers, HMRC will still provide traditional communications.
Making tax digital
HMRC processes more than 2 billion transactions every year and Shah said that 90% of those happen online already. He said that between 2015 and 2016, for example, there was a “significant increase” in online submissions for self-assessment. Shah said:
Digital tax accounts are a key part of our digital transformation. Business tax accounts are available to 5 million businesses across the UK. And about 60% of our business customers have already made use of business tax accounts. On the individuals side its available to 45 million and 8 million are already using it on a regular basis.
The department doesn’t want to limit itself to tax accounting alone, however, and Shah noted that more than 1 million tax credit renewals are also happening online. One benefit of the online systems, he explained, is that when a change of circumstance is logged digitally, there is no need for HMRC to back date the correction and the number of areas the department has to manually process goes down because the data is “always in line”.
However, it’s not just the front-end digital apps that the tax authority is focusing on. It is also working on transforming its back-end infrastructure to cope with the new digital load - much of which relies on SAP systems. Shah said:
When we started our transformation in 2015, we realised our IT infrastructure was not suitable. That’s when we started our virtualisation programme. Some 50% of our IT estate is already virtualised, and given the size of our estate, that’s not a small thing. And we did that in less than 2 years.
Almost 90% of our SAP estate is virtualised, in a private cloud. It wasn’t easy, technologies were developing, security isn’t easy, so we had to do a lot of work with our partners to get the right solution. But it’s now 90% virtualised. All of our SAP apps were virtualised in about 9 months.
We are now in the final stage of database virtualisation, and we only have three databases left. Hopefully by the end of the financial year we will be 100% virtualised on our SAP estate.
Shah said that virtualisation across the wider estate is “progressing” and HMRC is working through the programme technology by technology. And of the benefits, he said:
It gives us various different benefits - flexibility, the ability to dial up and dial down, there are cost efficiencies, and commercial efficiencies (we can switch suppliers more easily). There are various benefits that we are deriving out of our virtualisation programme.
The platformShah outlined how the ‘making tax digital’ system as a whole is based on various different digital platforms. On the top layer there is a multi-channel digital tax platform, which runs all the digital applications. This is fully virtualised and and has back-up measures in place. Shah said:
It’s fully virtualised and we have a multi-active digital tax platform. What we mean by that is it’s active-active across multiple suppliers. So if one supplier goes down, one cloud provider goes down, our services are not affected. It has happened, this is not a theory. We have seen occurrences where for whatever reason one supplier goes down, one cloud provider goes down, and it has no affect on the customer facing apps. It has zero impact.
Behind the top digital layer rests a number of platforms, such as finance and HR, which run on SAP and support the internal HMRC organisation. And below that there is a data hub. Shah said:
We’ve also got our data hub, it is our secured data point where all tax payer related data goes. Everything flows there. We drive compliance. We want to make compliance the easy option and non-compliance more difficult. We wanted to use the data that’s available to us to drive better compliance, to drive real-time compliance, in a highly secured, single point - where everything goes into it. That’s our data repository.
Equally, the making tax digital system is going to be heavily reliant on the use of APIs, so that individuals and businesses have access to an array of accounting software for their use when interacting with HMRC. Shah said:
APIs are very important and form a key part of our digital strategy. We think of APIs as a bridge between our IT systems and third party tax management software. We are working quite closely with about 700+ software companies that develop tax management products for small, medium and large businesses. It’s a significant change for all of us, including the wider tax-paying population.
We want to make sure that all the software providers, all the tax agents and the end-users have the right facilities available to make good use of the digital technology that we are developing.
It has not been easy
From Shah’s presentation it’s clear that HMRC thinks it has done quite a lot of heavy lifting already and is making good progress on its digital transformation. Shah puts the successes down to the department working closely with colleagues outside of IT and the programme being ‘business led’. He said:
Ideas come from them, we work with them to make things better for them. It’s important that something of this size and scale is not done in isolation. Most of the stages are business led. Virtualisation is probably the one exception, everything else is business led.
However, he did note that the programme hasn’t been easy and said that it is the most challenging project the department has undertaken in its history. Most notably, Shah pointed to skills and the need for HMRC to become more responsive as the main difficulties for the department in going through this transition. He said:
There are quite a few challenges. The biggest focus area for us is skill development. At various levels. We want to develop skills for our colleagues working to develop this transformation. The next layer is for our internal users, the ones that will be using this technology. Then the wider taxpaying community. Our skill set base was not that strong and we are developing that skill set across that chain.
New communication channels present a new set of challenges. Responsiveness is the key thing. You can no longer receive a letter, wait a few days and then decide to write back. It’s very quick.
We listen, learn, listen, learn. We listen to everyone else.
We already are one of the UK’s most digital organisations and we don’t want to stop that. We want to be the most digital tax authority in the world. The current transformation - the £1.3 billion - is probably the biggest in our history. This is a different scale all together. We are at the forefront of the wider digital revolution. We want to make it exciting and satisfying, not just for our external customers, but for our internal ones too.