Modern Tax Administration: The Role of AI in HMRC
MPs criticize HMRC as a 'dinosaur', advocating for the incorporation of AI to modernize tax office operations.
MPs are pushing HMRC to embrace AI to boost productivity and streamline services, as the cost of tax collection rose by an eyebrow-raising £563 million between 2019-20 and 2023-24. Let's dive into the nitty-gritty of this tax revolution and explore the potential benefits it brings.
The steep jump in the cost of tax collection coincided with a 15% surge in tax revenues from corporation tax, VAT, and income tax self-assessment. As the tax system grows in complexity, more people are filing returns due to stagnant thresholds and increased wages. To add fuel to the fire, there were 240 tax policy changes announced between 2022 and 2024, totalling an estimated net cost of £1.79 billion for HMRC and businesses.
On the productivity front, compliance productivity has dropped significantly, with returns per compliance worker plummeting from over £1.4 million in 2019 to £1.27 million in 2023. This decline in performance not only hollows out HMRC's coffers but also erodes taxpayer trust, as traditional methods of communication, such as snail mail, are slow, costly, and a pain in the neck.
To tackle these challenges, the Public Accounts Committee (PAC) has recommended that HMRC outline concrete plans to simplify the tax system and report on the impact on costs. But it's not all about breaking up with old habits; there's some opportunity for innovation lurking in the corner.
AI: The X-Factor in Modernizing Tax Administration
HMRC's IT systems have been deemed outdated, with legacy systems lingering despite the transition to Making Tax Digital. The PAC report underscores the need for swift action to modernize HMRC's systems, including embracing AI to improve productivity and usher in the second quarter of the 21st century.
One key area that could benefit from AI integration is accessibility to guidance. By collaboration with third parties and the Government Digital Service, HMRC will make its guidance compatible with AI solutions. This opens the door for businesses to integrate HMRC’s official guidance into AI-driven tools, offering personalized, real-time help for taxpayers without HMRC's direct involvement.
Another proposed initiative is the launch of an interactive compliance guidance tool on GOV.UK. This tool aims to provide step-by-step support during compliance checks, reducing errors and administrative burdens. Simplified language in HMRC letters and phasing out redundant Corporation Tax communications also aim to improve the first-time compliance rate.
By embracing AI, HMRC could offer more personalized assistance to taxpayers, lighten its workload, and enhance compliance. The UK government’s £2 billion budget for a new CRM and CCaaS platforms is a stepping stone towards this goal, with this modern infrastructure supporting future AI integration. By leveraging AI for predictive analytics and risk assessment, HMRC could become a proactive, tech-driven administration while maintaining human oversight for complex cases.
It's high time for HMRC to modernize its systems and embrace AI to capture the opportunities offered by this technology and seize the reins of the 21st century.
Stay tuned as we dive deeper into the intricacies of HMRC's plans for AI initiatives in future articles. In the meantime, if you need help with taxes, don't shy away from reaching out to a tax professional – they're worth their weight in gold! 💰💡
- HMRC has been urged to leverage AI to boost productivity and modernize services, as the cost of tax collection rose significantly between 2019-20 and 2023-24.
- The adoption of AI could help improve accessibility to tax guidance, as HMRC collaborates with third parties and the Government Digital Service to make guidance compatible with AI solutions.
- The UK government's £2 billion budget for a new CRM and CCaaS platforms serves as a stepping stone towards AI integration, supporting future AI integration for predictive analytics and risk assessment in HMRC.
- To maintain human oversight for complex cases, HMRC could become a proactive, tech-driven administration by embracing AI, offering more personalized assistance to taxpayers, lightening its workload, and enhancing compliance.
- Businesses could benefit from integrating HMRC’s official guidance into AI-driven tools, offering personalized, real-time help for taxpayers without HMRC's direct involvement, as AI integration is a key recommendation for HMRC's modernization.
