Why Doesn't The Inland Revenue Understand Computers?

Jeremy Hetherington-Gore, Tax-news.com, London

31 August 2000

Why Doesn't The Inland Revenue Understand Computers?

The problems the UK's Inland Revenue has been experiencing with its on-line tax filing system are just the latest in a long series of computer-related disasters experienced by the antiquated department.

News two weeks ago that 'self-assessment' returns filed electronically are laboriously re-entered into the Revenue's main computer system calls to mind a vision of Dickensian work-places with pinstripe-trousered clerks tapping data onto punched cards using systems that were last modern in 1950. Don't laugh - it probably still happens somewhere in the impenetrable recesses of this venerable institution, and the punched cards are then probably converted into computer tape to make them compatible with the Revenue's ICT computers, bought in a modernisation drive in the 1970's.

So the Revenue's computer systems are an geological museum of the history of the IT revolution, with each new, incompatible layer superimposed on the last. Occasionally, reports emerge into the outside world of immensely expensive systems being abandoned, of developments running ten years late, and other such horror stories. Until now, the Revenue has been able to suppress most of the bad news, being a law unto no-one except itself, but now that it has been forced to meet its customers in the bright light of the Internet, the truth can no longer be hidden.

The Revenue's problems have been worsened by the accelerating pace of change in the structure of income tax: the present Government in particular has been guilty of serial disruption to the operation of PAYE. The self-assessment system, introduced three years ago, has shifted large parts of the collection process onto individuals, while Labour's policy of tying the payment of benefits to paid work means more tasks for employers. Businesses already administer the working families tax credit, the payment to people on low incomes. Soon they will have responsibility for child credit and the deduction of student loan repayments.

All this should have reduced the Inland Revenue's work-load, but the inflexibility of its systems has meant an opposite result. The Revenue is a mighty super-tanker, which seemingly takes not just one mile to turn round, but twenty years!

Steve Matheson, the deputy chairman of the board of the Inland Revenue, acknowledged as much in the months before his retirement this year. At a symposium in May, he said the system was "creaking" and that the situation was "very worrying".

While the Revenue suffers on one side, individuals and businesses suffer on the other. This week, the Chartered Institute of Taxation, the leading body for tax accountants, has sent self-assessment tax returns to all 650-odd MPs, asking them to try to fill in the baffling forms without professional help, hoping to demonstrate the ridiculous complexity of the system to legislators.

The increasing burdens of PAYE administration bear mostly heavily on small business. The Institute of Directors and the CBI are strident in their calls for Government to do something about it. A 1998 report completed for the Revenue by the Centre for Fiscal Studies at the University of Bath found that the bottom 30 per cent of employers, by PAYE and national insurance collected, paid 75 per cent of compliance costs. It described this result as "highly regressive" against smaller businesses. The situation can only have got worse since then.

In Russia, when situations have become impossibly difficult, they ask: 'What is to be done?' knowing that nothing will be done or even possibly can be done. That is the case now in the UK's taxation system. Politicians will talk, businesses will complain, the Inland Revenue will remain silent; and nothing will be done. The forms will still arrive in the mail, though.

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