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Andrew Needham, Director of VAT Solutions (UK) Ltd, comments on a recent HMRC Departmental Report.

Andrew Needham

HMRC Say The Computer Systems Of The Two Former Departments Are Quickly Being Unified To Reduce Running Costs

HMRC announced in a May 2007 Departmental Report that the joining up of its IT systems has contributed to falling costs in the merged departments. However, the annual report also said losses to missing trader VAT frauds had been creeping up above one of its key targets.

HMRC’s financial accounting systems were merged, and their desktop IT systems were integrated over the 04/05 and 05/06 financial years, said the report. These changes were expected to contribute to targeted job cuts of 12,500. But the department said it couldn't separate the savings it derived from the IT integration from those gained by making process changes.  However, it did say how much it had spent: IT costs were £10.3m in 05/06, said the report. The total cost of merging the two departments was £75m.

Statistics

One interesting fact is that HMRC systems received and validated over 10,000 returns an hour during its peak processing period.

The IT systems are vast, with 75,000 users of more than 250 large-scale systems. The report said its IT workers put in 34,800 days a year on infrastructure and support, 43,200 days on application development, and 62,400 days on application integration and testing. All this helps it get close to its target of all businesses and IT literate individuals filing electronic tax returns by 2012. The report boasted that the department managed to complete an upgrade of 1,100 file servers, 110,000 workstations, 120,000 mailboxes, and 750 in-house software applications on time. It also managed this within budget, said the report, with the project cost coming in £14m below the budget of £175m.

VAT fraud

On VAT fraud, the annual report says HMRC has: "Substantially resolved the IT issues which were delaying the identification of some VAT debts", while fraud losses were up because of missing trader VAT rings being more active across Europe. It had got the ‘VAT gap’ down from 15.9 per cent in 02/03 to 11.7 per cent (within 0.7 per cent of its 11 per cent target) in 04/05.

However, it also said: "Receipts in 2005-06 were affected by increased attacks on the system from Missing Trader Intra-Community (MTIC) fraud and the VAT gap rose to 14.5 per cent". In real terms, this meant an increase in missing trader fraud from £3.5bn to £4.75bn. Furthermore, having been told last April by the Parliamentary Public Accounts Committee (‘PPAC’) that it ought to do something about the tax credit debacle, the report said it had "embedded some compliance specialists" in its call centres, and improved its paper processes. However, it failed to mention how last week the very same committee reported how poorly the department had managed to deal with the tax credit debacle. The report merely says: "The performance of the tax credit computer system has improved significantly. Major new software releases have been introduced delivering improvements in operational performance."

In contrast to this, the chair of the PPAC, Edward Leigh, had said just prior to the report that: "Billions of pounds...are still routinely overpaid to claimants. Very large amounts have to be written off...Changes have been made to the system, but who will be confident that they will make any difference?".

The recent criticisms by the PPAC follow on from the harsh words it gave to HMRC in December 2006 for letting the costs of its ‘Aspire’ IT contract with Capgemini spiral from £3.5bn to £8.5bn.