Nathan Talbott, Head of Commercial Litigation, and specialising in complex financial, tax and corporate disputes, dissects the recent report by the Committee of Public Accounts on the state of our tax system, and shares his thoughts on what HMRC needs to do to rebuild public trust.
The House of Commons Public Accounts Committee (PAC) made six recommendations in its recent report, The cost of the tax system. Given that the PAC Chair described HM Revenue and Customs as ‘a lumbering dinosaur’, for those of us who regularly deal with HMRC it is unsurprising that many of these focus on service delivery and customer engagement. At their heart, the recommendations reiterate what has always been an issue between HMRC and taxpayers, the erosion of mutual trust.
The PAC urges HMRC to address this by taking advantage of innovative technology, including artificial intelligence (AI). Many clients have lost trust in HMRC because of difficult experiences. Despite a well-established litigation and settlement strategy, all too often interactions with HMRC depend on the officer dealing with the matter. Improved technology may help to repair trust, but not if AI reduces quality human interactions in complex cases.
Trust in HMRC: a legacy problem
For some time, the perception of taxpayers we represent has been that there is one rule for the rich, and another for everyone else. Put another way, if you have enough money and the desire to, you can avoid paying your fair share. That has not been helped by some of the well-publicised ‘sweetheart’ deals HMRC agreed with big businesses from the mid-2010s onwards. By contrast, over the same period, various smaller companies and individuals were exposed to heavy-handed treatment by HMRC because of new tax laws, such as the loan charge, introduced in 2016 to tackle abusive disguised remuneration schemes. This aggressive behaviour compounded negative perceptions, especially where individuals had no way to settle their liabilities and threats could lead to bankruptcy. Although the loan charge has already been subject to two independent reviews and significantly watered down, there remain unresolved concerns. The government launched the Loan Charge Review in January 2025, and its final report is due in summer 2025.
Since Covid-19, HMRC’s efficiency has worsened. Despite increased costs, lower service levels have reinforced taxpayers’ and agents’ perceptions. It is now common to hear nothing from HMRC for 12 months or more, despite chasing. That is difficult to explain to clients who have concern and uncertainty hanging over them.
Trust: aspirations vs reality
HMRC’s task is incredibly difficult. It is reductive to glibly say that policy should be simplified, and then everything will be fine. However, compared to other tax authorities, it appears that HMRC has not yet found the right approach. Changing work patterns after Covid-19 and the new priorities of successive governments have challenged HMRC, and it is unsurprising that service levels have gone backwards.
HMRC’s attempts at modernisation have floundered. As the PAC’s report highlighted, HMRC’s 2020 Tax Administration Strategy setting out how it would build a modern, trusted tax administration system by 2030 has so far resulted in falling performance. Its Making Tax Digital (MTD) programme is generating added tax revenue but is also imposing additional administrative costs on taxpayers. The criticism is that HMRC did not engage with taxpayers and agents to understand this burden. Trust will only be renewed if taxpayers feel HMRC appreciate their interests and give them priority.
Will increased use of AI help?
The government’s recently published Blueprint for Modern Digital Government envisages harnessing the power of AI for the public good. But it sees AI as a tool for spotting patterns and processing information. Used in this way, AI may be a significant help to HMRC, for example, pre-populating returns and using e-invoicing, already standard practice in other jurisdictions. But the blueprint acknowledges that ‘even as they become more digital, services will be human too’. AI should help HMRC employees so that they have more opportunities to improve the services for taxpayers where human interactions matter most.
Appreciate the human story
Taxpayers who deal with HMRC entirely through computers generally have decreasing trust in the tax authority. Receiving a negative response from a computer in such complex and important situations cannot be the default position. Investing in high-quality human interactions to run alongside enhanced technology should provide better customer service. In such an environment, HMRC will be more likely to rebuild public trust and satisfaction.
A version of this article was first published in the Solicitors Journal on Thursday 22 May 2025.
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