HMRC is a 'lumbering dinosaur' say MPs who call on tax office to start using AI

MPs are urging HMRC to start using AI to improve its productivity and 'out of date' services as the cost of collecting taxes soared by more than half a billion pounds.

A report by the Public Accounts Committee (PAC) found that the tax office spent £563million more between 2019-20 and 2023-24 on collecting taxes.

It also warned that HMRC's customer service is 'out of date' with too much reliance on post that is 'slow, costly and inconvenient'.

The 15 per cent increase in the costs of tax collection for corporation tax, VAT and income tax self assessment coincided with a similar rise in tax revenues.

The tax system is getting more complex, with more people filing tax returns due to frozen thresholds and increased wages.

At the same time, there have been 240 tax policy changes announced between 2022 and 2024 at an estimated net cost of £875million to HMRC and £913million to businesses over the next years, according to the report.

Compliance productivity is also on the decline, with returns falling from over £1.4million per compliance worker in 2019 to £1.27million four years later.

It comes despite the tax office employing more senior employees, adding £100million to salary costs.

The committee has recommended HMRC publish 'realistic plans' to simplify the tax system and report on the impact on its, and taxpayers', costs.

The report found that the tax office's customer service processes are out of date, which is leading to a decline in trust among taxpayers.

It said that HMRC had recognised that lower service levels have affected levels of trust.

In its last report, PAC found that Average call waiting times reached record levels and exceeded 23 minutes in 2023/24, up from 16 minutes 24 seconds in 2022/23.

Sir Geoffrey Clifton-Brown MP, Chair of the Committee, said: 'It is truly frustrating to see how much of its business the tax authority still does by post.

'Customers at the moment are forced to engage with an authority that is frankly a lumbering dinosaur.

'HMRC's attempts to transform its services through Making Tax Digital, while generating extra revenue, have also imposed hundreds of millions in extra costs on the taxpayer, with more set to come.

'The report makes clear that it will cost self-assessment taxpayers £200million more than they save, and this is completely intolerable.'

Elsewhere, the report found that HMRC had 'allowed' its legacy IT systems to 'become out of date', despite the transition to Making Tax Digital.

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In 2020, HMRC admitted its systems were a 'significant risk to operations' but progress is taking longer than expected with further updates dependent on future spending reviews.

In 2023-24, 69 per cent of all of HMRC's interactions with customers were digital but MPs say too much correspondence is by post which discourages customers from using digital services.

PAC is calling on HMRC to set out its timetable for improving its IT systems within three months of the spending review being published, as well as setting out a way to reduce 'unnecessary communication'.

The PAC report also found that out of date tech 'will constrain its use, while making it more vulnerable to the use of AI by bad actors' and should instead look at how it might implement AI to improve productivity.

Last month, the Government announced HMRC would trial using voice recognition software in customer services over the course of this year.

Sir Geoffrey added: 'It is time for HMRC to prioritise modernising its own systems so that it is fit to enter the second quarter of the 21st century.

'The potential for new technologies such as AI to augment HMRC's efforts to tackle these issues is clear, and HMRC must move at pace to seize the opportunities it presents.'

A spokesman for HMRC said: 'It costs HMRC just half a penny to collect every pound of tax revenue and the National Audit Office has said our compliance work provides good value for money.

'As part of the Government's plan for change, we're investing to modernise and reform the tax system, determined to reduce costs and the tax gap as we improve our compliance and customer services further.'