HMRC misjudged its digital strategy by reducing staffing levels before technical improvements were complete, according to a spending watchdog.
The National Audit Office (NAO) said that the failure to embed new technology properly before headcount reductions were made led to a collapse in service quality during 2015.
It said that customers were often left waiting on hold for more than an hour, although services have subsequently improved following the recruitment of additional staff.
Amyas Morse, head of the National Audit Office, said: “HMRC’s overall strategy of using digitally enabled information to improve efficiency and deliver service in new ways make sense to the NAO.
“This does not change the fact that they got their timing badly wrong in 2014, letting significant numbers of call handling staff go before their new approach was working reliably. “This led to a collapse in service quality and forced a rapid expansion of headcount.
“HMRC needs to move forward carefully and get their strategy back on track while maintaining, and hopefully improving, service standards”.
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The NAO report said that between 2010-11 and 2014-15, HMRC cut staff in personal tax from 26,000 to 15,000.
Its strategy involved increasing automation of the PAYE system, operating on a more flexible basis so staff could move between different services and moving customers online.
It introduced automated telephony and paperless self-assessment processes in 2013/14 but demand for telephone advice did not fall.
Despite this, in order to meet its budget, it released 5,600 staff from its personal tax operations.
The report said: “HMRC believes it was over-optimistic about the cumulative impact of the change and had not built sufficient contingency into its plans.”
After average waiting times tripled, HMRC was forced to recruit another 2,400 staff to its taxes helpline in autumn 2015.
Responding to the report, Ruth Owen, HMRC’s director general for customer services said: “We recognise that early in 2015 we didn’t provide the standard of service that people are entitled to expect and we apologised at the time. We have since fully recovered and are now offering our best service levels in years.
“Over the past six months we’ve consistently answered calls in an average of less than six minutes, and have launched new online tax accounts and webchat for everyone, enabling customers to manage their tax affairs wherever and whenever they want.”
