As part of the major digitisation of tax services, HMRC plans to spend £1.8bn on transformation over the next four years, achieving £643m in cost savings, but this will mean further cuts to staff.

By 2021, HMRC expects to cut a further 9,600 jobs, representing around 16% of staff, from its current base of 60,000.

It will also continue to rationalise its property estate with the closure of 137 offices and automate more of its processes.

The NAO assessment describes this approach as ‘credible and proportionate to the scale of the risks involved’, but issues a warning. The first relates to optimism bias in key assumptions, which it says was behind the move in mid-2015 to reduce contact centre support in favour of online working, which happened too quickly.

Tax revenues were 3.7% (£19.1bn) up on the previous year, driven by a 3.8% increase in income tax and national insurance contributions (NICs) bringing in an additional £10.3bn. Corporation tax increased 9.9% or £4.1bn, and VAT by £2.1bn (1.8%).

Capital gains tax and insurance premium tax also recorded significant increases, by 28.1% (to £7.3bn); and 27.6% (to £3.7bn respectively. Inheritance tax was up by £300m or 7.9%.

The annual cost of running HMRC was £3.2bn in 2015-16, compared to £3.1bn in 2014-15.

HMRC’s estimate of compliance yield in 2015-16 was £26.6bn against a target of £26.3bn. However, in its commentary on the department’s figures, the National Audit Office (NAO) says it is not happy with the way in which HMRC calculates compliance yield, which it says is not simply a cash figure.

The audit watchdog says compliance estimates draw on ‘a range of different measures of revenue generated or losses prevented all of which involve a degree of estimation and uncertainty’ and wants HMRC to provide further explanation. In its accounts, HMRC says in future it will report it in the year in which it has an impact on tax receipts, rather than in the year that it completes compliance interventions.

Secondly the NAO says HMRC has yet to estimate the costs for individual taxpayers or businesses of making the transition to online services or to quantify the benefits they can expect from developments such as digital tax accounts.

HMRC’s report admits that in the first part of the financial year, service levels were ‘substantially below’ targets on both customer calls handled and post turnaround times.

Phone performance dropped to 48% of call attempts handled in May 2015, moving to above 70% in quarter two and above the target of 80% from November onwards. At the start of the year average speed of answer performance fell to 18-20 minutes, but has averaged around six minutes over the last four months.

Post handling performance took longer to recover from a low point in May of only 31% of post handled within 15 days, but by the end of the year HMRC was handling 70% of post within 15 days.

Across the year, HMRC handled 72% of calls (against a target of 80%), handled 52% of post within 15 days (against a target of 80%) and handled 87% of post within 40 days (against a target of 95%).

Amyas Morse, head of the NAO, said: ‘HMRC is running a complex and challenging set of change programmes, and aiming to maintain service to taxpayers at the same time. On the one hand, it needs to keep its nerve and commitment to its goals even if there are occasional setbacks along the way; on the other, it needs to ensure that it does not make the taxpayer underwrite the risk of failure through service breakdowns.’

HMRC Annual Report and Accounts 2015-16 is here

The NAO report on HMRC’s accounts is here