HMRC Confirms Major Organizational Shake-Up

November 30th 2015

(Originally Published by Tax Analysts)

The U.K. tax authority will close 137 local offices by 2021 and open 13 new regional hubs over 10 years in an effort to modernize its capacities and workforce, a move that critics say will lead to redundancies and even worse customer service.

Proclaiming that it will ‘‘create a tax authority fit for the future,’’ HM Revenue & Customs announced in a November 12 news release that it will also invest in data analytics, new online services and compliance techniques, and new skills and work processes to improve its services to taxpayers and curb tax evasion.

The tax authority said it plans to open its first regional center in 2016-2017 and will open the others between 2017 and 2021. It will also open four specialist sites for ‘‘work that cannot be done elsewhere,’’ especially when HMRC must work with information technology suppliers or other government agencies or departments.

HMRC aims to bring its 58,000 full-time employees, who are currently spread out across 170 offices nationwide, into the new centers and expects that 90 percent of those employees will either work in a regional center or ‘‘see out’’ their careers in an HMRC office, according to the department’s issue briefing. Employees will be informed a year in advance when they are to be moved to another office. The strategy will save £100 million annually by 2025, according to the tax authority.

‘‘HMRC has too many expensive, isolated and outdated offices,’’ Chief Executive Lin Homer said in the release. ‘‘This makes it difficult for us to collaborate, modernize our ways of working, and make the changes we need to transform our service to customers and clamp down further on the minority who try to cheat the system.’’

In light of a recent report from the U.K. House of Commons Public Accounts Committee slamming HMRC’s dismal customer service and ‘‘woefully inadequate’’ record of prosecuting tax evasion cases, this latest move has drawn sharp criticism amid concerns that taxpayer services will become even worse as local offices close. (Prior coverage: Tax Notes Int’l , Nov. 9, 2015, p. 504.)

The Public and Commercial Services Union called the plan ‘‘devastating’’ and urged U.K. members of Parliament to review it. ‘‘Closing this many offices would pose a significant threat to the operation of HMRC, its service to the public and the working lives of staff, and the need for parliamentary scrutiny of the plans is undeniable and urgent,’’ Mark Serwotka, the union’s general secretary, said in a statement.

The Chartered Institution of Taxation (CIOT) urged HMRC to ensure that customer service will not suffer because of the restructuring plan. ‘‘Taxpayers and tax professionals alike will be anxious that a public body that is struggling to meet its public-facing service targets has announced that it is about to lose many staff and close its local offices,’’ CIOT President Chris Jones said in a news release. ‘‘It is crucial that HMRC retains as many appropriately qualified and experienced staff as it can.’’

Pros and Cons

Phil Berwick, a tax investigations specialist at Berwick Law, pointed out that HMRC has shrunk significantly in recent years, closing 281 walk-in inquiry centers over the past 18 months and laying off 11,000 fulltime staff since 2010.

‘‘As a consequence, the level of service to taxpayers and their advisers has plummeted, and the latest announcement will likely lead to a further decline,’’ Berwick told Tax Analysts. ‘‘The latest news will heap misery and despair on those who have to deal with HMRC.’’

Another adverse effect of HMRC’s plan is that not all staff will move to the new regional centers, Berwick said. ‘‘This is likely to lead to a serious knowledge shortage within HMRC, as experienced officers choose not to make the transition to the new offices,’’ he said.

Chas Roy-Chowdhury, head of taxation with the Association of Certified Chartered Accountants (ACCA), said his organization doesn’t want a reduced head count, but rather, HMRC must increase the skills of its workforce. As it stands, the current staff is unable to address complex tax cases, in part because of its inadequate software, he said.

The ACCA recognizes the need for HMRC to update its organization and eliminate some offices because it inherited a now-outdated structure when it was created by the merger of Inland Revenue and HM Customs and Excise, Roy-Chowdhury said.

While there’s never a good time to announce such a major change, ‘‘there needs to be an upskilling and greater uniformity of service,’’ Roy-Chowdhury said. ‘‘Hopefully, that will be part of what comes out of these changes.’’

The need for a taxpayer to physically visit a tax office ‘‘has virtually been eliminated, as most interaction with HMRC by taxpayers is over the phone or online, so the consolidation of tax offices makes sense,’’ Tim Stovold of Kingston Smith LLP told Tax Analysts. However, it’s uncertain whether the proposed headcount reduction can be justified in light of HMRC’s reputation for poor customer service, Stovold said.

One advantage of establishing larger offices that in some cases can hold more than 6,000 employees is that HMRC will be able to improve its on-site training and increase skills, Stovold said. ‘‘A higher-skilled HMRC workforce would go some way to compensate for the loss of front-line call centers, but whether the balance will be right remains to be seen,’’ he said.