In the four years since top civil servant Gus O’Donnell, then permanent secretary at the Treasury, concluded that merging the former Inland Revenue with Customs & Excise would create a more efficient and effective tax collection and enforcement organisation, Her Majesty’s Revenue & Customs (HMRC) has faced a multitude of supplier and management-related IT challenges. Capgemini, Fujitsu Services and Accenture continue to share responsibility for the systems and expertise behind its main IT-based systems. When the two departments merged in 2005 Fujitsu, which managed existing Custom’s IT for £960 million, was brought in on the £2.9 billion Aspire tax IT services deal Capgemini won from EDS the previous year to create an enlarged, £4.5bn Aspire contract. The merger was expected to cut IT and other operational costs in line with government-imposed spending cuts of five per cent annually until 2011.

But earlier this year HMRC admitted to a Public Accounts Committee that the cost of Aspire had spiralled to £8bn. While it has been less than precise in its accounting of the extra costs, it stated that the merger had led to a “re-evaluation” of the needs of the enlarged department. It certainly includes support for a new datacentre, extended print services and a new IT support centre as part of the new remit of the expanded Aspire contract, in addition to the integration of former departments’ legacy IT and Human Resource systems. But unforeseen challenges in taking over, not only systems but also expertise from other suppliers, has fuelled costly remedial operational measures.

For example, the National Insurance Recording System 2 (NIRS2) originally developed and maintained by Accenture, which lost out in its joint Aspire bid with EDS, has found it hard to divorce its legacy supplier – especially since the £14m HMRC paid to terminate its contract did not include the copyright over the NIRS2 software. The system holds the national insurance details of more than 60 million people, but Aspire contractor Fujitsu has recently had to hand back some work to Accenture, which has now been retained beyond its July 2007 transition deadline, for its expertise in running the NIRS2 systems.
HMRC said in response to the Committee that, as a “material subcontractor” Accenture’s services were costing the department no extra under the “agreed standard contract rates”. But MP Richard Bacon, a member of the Public Accounts Committee, said the extended sub-contracting of Accenture was a sign that HMRC had “lost control of its costs”.

The National Audit Office (NAO) has this year also been less than complimentary about the department’s progress in updating and rationalising its disparate PAYE systems, some of which are more than 20 years old. The NAO reported: “The use of legacy IT systems continues to provide major problems for HMRC.” Meanwhile, HMRC continues to invest in migrating the tax filing process online. In March 2006, it said it was adding to the £205m already allocated to fitting out its online infrastructure ready to accept a standardised electronic delivery of tax returns from businesses by 2012.
An additional £135m from Chancellor Gordon Brown’s budget will be used to expand the so far successful online tax return service as part of the Aspire contract and is slated to save administration costs by £89m a year.

However, the ongoing measures to correct IT system blunders that overpaid two million tax credits claimants by £1.9bn, led to errors in incapacity benefit accounts affecting 1.6m people and has calculated over a quarter of taxpayer’s PAYE codes incorrectly, according the NAO, also continue to occupy the work of CIO Steve Lamey and his team.