Recommendations & Conclusions
35 items
2
Conclusion
Thirty-Seventh Report - HMRC Performanc…
HMRC does not understand the reasons for the growth in the cost of research and development tax reliefs including how much is due to abuse. The cost of research and development (R&D) tax reliefs has grown by 240% over the last four years, with claims exceeding forecasts. Over this period …
Government response. 2.1 The government agrees with the Committee’s recommendation. Target implementation date: Winter 2023 2.2 HMRC is carrying out further analysis to understand the reasons for the growing cost of Research & Development (R&D) tax relief, including sectoral analysis of the …
HM Treasury
3
Conclusion
Thirty-Seventh Report - HMRC Performanc…
HMRC does not have a convincing plan for restoring compliance activity back to pre-pandemic levels. In response to the pandemic, HMRC suspended some of its compliance work in 2020–21 where taxpayers could not cope with inquiries, and because it needed to redeploy staff. The number of compliance investigations which HMRC …
Government response. 4. PAC conclusion: While we wait for the much-delayed SEND review, the support system continues to fail many children and remains financially unsustainable.
HM Treasury
4
Conclusion
Thirty-Seventh Report - HMRC Performanc…
Resource constraints are limiting HMRC’s ability to get the optimum level of compliance yield. Compliance yield represents the additional revenues that HMRC considers it has generated and the revenue losses it has prevented through its enforcement and compliance activities. HMRC spent around £1.5 billion on such activities in 2020–21 and …
Government response. 4: PAC conclusion: Resource constraints are limiting HMRC’s ability to get the optimum level of compliance yield. 4: PAC recommendation: HMRC should, in its Treasury Minute response, set out: • its analysis, including the costs and benefits, in determining the …
HM Treasury
5
Conclusion
Thirty-Seventh Report - HMRC Performanc…
It is too easy for taxpayers to be unwittingly lured into tax avoidance schemes. HMRC introduced the loan charge in 2019 to recoup tax from people who used ‘disguised remuneration’ schemes to avoid tax. The imposition of the loan charge on taxpayers who were unknowingly sold an unlawful scheme by …
Government response. 5: PAC conclusion: It is too easy for taxpayers to be unwittingly lured into tax avoidance schemes. 5: PAC recommendation: To reduce the risk of taxpayers getting involved in tax avoidance schemes, HMRC should, in its Treasury Minute response, set …
HM Treasury
6
Conclusion
Thirty-Seventh Report - HMRC Performanc…
Yet again customer service has collapsed and HMRC’s recovery plans are not clear. For over a decade this Committee has repeatedly reported on HMRC’s inadequate levels of customer service. Following an examination by this Committee in 2016, HMRC’s customer service improved, but since 2017–18 it has been declining. The decline …
Government response. 6: PAC conclusion: Yet again customer service has collapsed and HMRC’s recovery plans are not clear. 6a: PAC recommendation: HMRC should, in its Treasury Minute response, explain: • the service levels it is aiming to provide and by when, including …
HM Treasury
7
Conclusion
Thirty-Seventh Report - HMRC Performanc…
The benefits of Making Tax Digital to those with simple tax affairs are not clear. The requirement for taxpayers to keep tax records and submit quarterly returns to HMRC digitally is a key part of its 10-year modernisation strategy. From April 2024, HMRC will extend Making Tax Digital to 4.2 …
Government response. 7.1 The government agrees with the Committee’s recommendation. Recommendation implemented 7.2 Research conducted by HMRC and peer reviewed by independent academics indicates that Making Tax Digital (MTD) for VAT is likely to have generated Additional Tax Revenue (ATR) of a …
HM Treasury
8
Conclusion
Thirty-Seventh Report - HMRC Performanc…
Changed working practices have left HMRC with more office space than it needs. We have long standing concerns about the flexibility of HMRC’s estates strategy which is seeing it move to 13 regional centres with long-term non-breakable property leases. The shift to hybrid working caused by the pandemic has reduced …
Government response. 8.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2022 8.2 HMRC anticipated changes in its office space requirements and negotiated flexibility such as assignment, subletting and sharing of occupation arrangements into its regional centre leases, which …
HM Treasury
1
Conclusion
Thirty-Seventh Report - HMRC Performanc…
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Revenue & Customs (HMRC) on its performance in 2020–21.1
Government response. 2. PAC conclusion: We are concerned that HM Treasury does not intend to adequately monitor and update the ongoing cost of COVID-19 to the taxpayer. 2. PAC recommendation: As part of its Treasury Minute response, HM Treasury should explain how, …
HM Treasury
9
Conclusion
Thirty-Seventh Report - HMRC Performanc…
In its evidence to us, TaxWatch said the legacy of the employment support schemes risks being damaged if more is not done to recover the billions of pounds stolen from them.20 The Association of Accounting Technicians submitted evidence to us in which it said HMRC’s current target for recoveries somewhat …
Government response. 1.1 The government agrees with the Committee’s recommendation. Recommendation implemented 1.2 Since compliance work commenced on the COVID-19 support schemes, a great deal has been learnt about types and levels of error and fraud. HMRC’s pre-payment controls have been more …
HM Treasury
10
Conclusion
Thirty-Seventh Report - HMRC Performanc…
HMRC is responsible for administering Corporation Tax research and development (R&D) reliefs, which support companies that work on innovative projects. There is a scheme for small and medium-sized enterprises, and a research and development expenditure credit scheme, mainly for larger companies. Both schemes are complex and open up opportunities for …
Government response. 2.1 The government agrees with the Committee’s recommendation. Target implementation date: Winter 2023 2.2 HMRC is carrying out further analysis to understand the reasons for the growing cost of Research & Development (R&D) tax relief, including sectoral analysis of the …
HM Treasury
11
Conclusion
Thirty-Seventh Report - HMRC Performanc…
The cost of R&D tax reliefs has grown by 241% over the last four years to reach £9.3 billion in 2020–21 (Figure 1). In 2019, UK companies claimed tax relief on £47.5 billion of R&D spending; 83% more than the Office for National Statistics’ (ONS) estimate of privately financed business …
Government response. 2.1 The government agrees with the Committee’s recommendation. Target implementation date: Winter 2023 2.2 HMRC is carrying out further analysis to understand the reasons for the growing cost of Research & Development (R&D) tax relief, including sectoral analysis of the …
HM Treasury
13
Conclusion
Thirty-Seventh Report - HMRC Performanc…
HMRC estimates that error and fraud in R&D tax reliefs was £336 million in 2020– 21, or 3.6% of related expenditure (2019–20 – £311 million or 3.6% of related expenditure). The C&AG considers the level of error and fraud estimated by HMRC to be material and qualified his regularity opinion …
Government response. 2.4 The government agrees with the Committee’s recommendation. 9 Target implementation date: Winter 2023 2.5 Activities are currently underway to address key error & fraud issues, including designing and implementing: • the package of R&D reform measures announced at Autumn …
HM Treasury
14
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We asked HMRC how much of the increase in the cost of R&D tax reliefs was down to abuse. HMRC said monitoring was difficult because over time R&D tax reliefs had become increasingly generous and thus an increase in claims would be expected. It also said that claims have consistently …
Government response. 2.4 The government agrees with the Committee’s recommendation. 9 Target implementation date: Winter 2023 2.5 Activities are currently underway to address key error & fraud issues, including designing and implementing: • the package of R&D reform measures announced at Autumn …
HM Treasury
15
Conclusion
Thirty-Seventh Report - HMRC Performanc…
Given the uncertainties in HMRC’s current estimates of error and fraud in R&D relief claims, we asked HMRC what it was doing to improve its estimates. It told us that it was planning a random enquiry programme for R&D claims which will inform its estimate. We expressed our concerns that …
Government response. 2.4 The government agrees with the Committee’s recommendation. 9 Target implementation date: Winter 2023 2.5 Activities are currently underway to address key error & fraud issues, including designing and implementing: • the package of R&D reform measures announced at Autumn …
HM Treasury
16
Conclusion
Thirty-Seventh Report - HMRC Performanc…
HMRC estimated that compliance yield from its tax compliance activities in 2020– 21 was £30.4 billion. Yield was down 18% from the £36.9 billion HMRC generated in 2019–20. HMRC has reported the reduction reflected higher than usual performance in 2019–20 and lower than usual performance in 2020–21. In 2019–20, HMRC’s …
HM Treasury
17
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We asked HMRC whether it was going to return to the cases it had not taken forward during 2020–21. It told us that, by and large, the action it took in 2020–21 would defer its ability to correct any non-compliance and recover tax, and it would not involve a significant …
Government response. 3.1 The government agrees with the Committee’s recommendation. Target implementation date: Autumn 2022 3.2 HMRC took on significant additional responsibilities during the pandemic, providing essential COVID-19 economic support whilst continuing their core compliance activities. The Covid schemes have helped millions …
HM Treasury
18
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We raised our concerns with HMRC that the impact of COVID-19 will make it difficult to make like for like comparisons of its performance. HMRC agreed that there will be distortions but said it would do its best to be transparent. It also said it will look at how it …
Government response. 3.1 The government agrees with the Committee’s recommendation. Target implementation date: Autumn 2022 3.2 HMRC took on significant additional responsibilities during the pandemic, providing essential COVID-19 economic support whilst continuing their core compliance activities. The Covid schemes have helped millions …
HM Treasury
19
Conclusion
Thirty-Seventh Report - HMRC Performanc…
HMRC’s annual report shows that it spent over £1.5 billion on compliance activities in 2020–21.31 The rate of return from those activities varied across HMRC’s five customer groups in 2020–21 (Figure 2). Returns were highest from large businesses, with average yield of £60 for each £1 HMRC spent on compliance, …
Government response. 4.1 The government agrees with the Committee’s recommendation. Recommendation implemented 4.2 HMRC are funded to reduce the tax gap through core ‘business as usual’ funding and additional “spend to raise
HM Treasury
20
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We asked HMRC whether it would generate more revenue if it concentrated more of its compliance activities on large companies and less on small businesses and individuals. It told us that payback was a key factor when deciding how to deploy its resources, but not the only one. HMRC added …
Government response. 4.1 The government agrees with the Committee’s recommendation. Recommendation implemented 4.2 HMRC are funded to reduce the tax gap through core ‘business as usual’ funding and additional “spend to raise
HM Treasury
21
Conclusion
Thirty-Seventh Report - HMRC Performanc…
In its evidence to us TaxWatch argued for a substantial investment in tax compliance to ensure that public confidence in the tax system is maintained and enhanced.33 In its evidence, the Association of Accounting Technicians (AAT) argued that HMRC should undertake more audits of taxpayers, and, in its evidence, Unchecked …
Government response. 4.1 The government agrees with the Committee’s recommendation. Recommendation implemented 4.2 HMRC are funded to reduce the tax gap through core ‘business as usual’ funding and additional “spend to raise
HM Treasury
22
Conclusion
Thirty-Seventh Report - HMRC Performanc…
HMRC told us the nature of tax avoidance has changed. It said the bulk of avoidance schemes now relate to employment taxes and are not targeted at affluent people but middle-income earners, some of whom knowingly enter avoidance schemes and others who unwittingly get involved.39 In 2019, HMRC introduced the …
Government response. 5.1 The government agrees with the Committee’s recommendation. Recommendation implemented 5.2 HMRC continues to build on the strategy outlined in ‘Tackling promoters of mass- marketed tax avoidance schemes’ published in March 2020. This includes raising awareness and helping taxpayers steer …
HM Treasury
23
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We are concerned about how taxpayers are protected from those who promote avoidance schemes, and the financial damage that can follow if taxpayers unknowingly enter unlawful schemes. We therefore asked HMRC what progress it had made in pursuing the promoters of illegal schemes. It told us its strategy for tackling …
Government response. 5.1 The government agrees with the Committee’s recommendation. Recommendation implemented 5.2 HMRC continues to build on the strategy outlined in ‘Tackling promoters of mass- marketed tax avoidance schemes’ published in March 2020. This includes raising awareness and helping taxpayers steer …
HM Treasury
24
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We asked HMRC whether it could do more to publicise its successes, including the naming and shaming promoters of avoidance schemes. HMRC explained how it was seeking to reduce demand through transparency. It said it published annual reviews of the tax avoidance market and it was more quickly disclosing information …
Government response. 5.1 The government agrees with the Committee’s recommendation. Recommendation implemented 5.2 HMRC continues to build on the strategy outlined in ‘Tackling promoters of mass- marketed tax avoidance schemes’ published in March 2020. This includes raising awareness and helping taxpayers steer …
HM Treasury
25
Conclusion
Thirty-Seventh Report - HMRC Performanc…
This Committee has regularly examined HMRC’s customer service performance. In 2010, this Committee concluded HMRC’s performance in responding to calls had been poor.43 In 2016, the Committee found that customer service levels had collapsed as a result of HMRC assuming two new services, automated telephony and paperless self- assessment, would …
Government response. 6: PAC conclusion: Yet again customer service has collapsed and HMRC’s recovery plans are not clear. 6a: PAC recommendation: HMRC should, in its Treasury Minute response, explain: • the service levels it is aiming to provide and by when, including …
HM Treasury
26
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We asked HMRC why response times were very poor at the end of 2020–21. HMRC said in the first half of 2020–21 it had diverted 5,000 customer service staff to work on COVID-19 support schemes. HMRC also said that during this period it did not have backlogs. It told us …
Government response. 6: PAC conclusion: Yet again customer service has collapsed and HMRC’s recovery plans are not clear. 6a: PAC recommendation: HMRC should, in its Treasury Minute response, explain: • the service levels it is aiming to provide and by when, including …
HM Treasury
27
Conclusion
Thirty-Seventh Report - HMRC Performanc…
HMRC told us that its performance was improving in 2021–22. It said it had got helpline performance up to what it regarded as a “decent service”, and had thus diverted resources to handling post, as this was the area with most backlogs.48 HMRC’s latest published quarterly performance update, shows that …
Government response. 6: PAC conclusion: Yet again customer service has collapsed and HMRC’s recovery plans are not clear. 6a: PAC recommendation: HMRC should, in its Treasury Minute response, explain: • the service levels it is aiming to provide and by when, including …
HM Treasury
28
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We asked HMRC why call handling performance had been declining before COVID-19. HMRC told us that it was resourced to give a “decent” rather than “brilliant” service and it had efficiencies that it had to deliver. It said that although some phone contact was very important to HMRC and to …
Government response. 6: PAC conclusion: Yet again customer service has collapsed and HMRC’s recovery plans are not clear. 6a: PAC recommendation: HMRC should, in its Treasury Minute response, explain: • the service levels it is aiming to provide and by when, including …
HM Treasury
29
Conclusion
Thirty-Seventh Report - HMRC Performanc…
For 2021–22, HMRC has replaced most of its response time measures with metrics of whether it is easy for customers to access and deal with HMRC.52 Rather than call handling times, it now publicly reports the percentage of callers wishing to speak to an adviser who are able to get …
Government response. 6.1 The government agrees with the Committee’s recommendation. Target implementation date: June 2022 6.2 HMRC have been working through the stocks of correspondence that built up while the department’s resources were deployed on the COVID schemes, whilst keeping helpline service …
HM Treasury
30
Conclusion
Thirty-Seventh Report - HMRC Performanc…
HMRC’s Making Tax Digital initiative is central to its 10-year modernisation strategy. It requires taxpayers to keep tax records and submit returns digitally. HMRC introduced Making Tax Digital for VAT first. The largest VAT traders provided digital returns in 2019, and the smaller ones are being required to do so …
Government response. 7: PAC conclusion: The benefits of Making Tax Digital to those with simple tax affairs are not clear. 7: PAC recommendation: HMRC should, in its Treasury Minute response, explain how the introduction of Making Tax Digital will be made easier, …
HM Treasury
31
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We asked HMRC what Making Tax Digital was for. HMRC told us Making Tax Digital was about making tax easier, keeping tax in line with the digital age and making business more productive.56 HMRC also told us that, by providing real time or up-to- date data on taxpayers, Making Tax …
Government response. 7: PAC conclusion: The benefits of Making Tax Digital to those with simple tax affairs are not clear. 7: PAC recommendation: HMRC should, in its Treasury Minute response, explain how the introduction of Making Tax Digital will be made easier, …
HM Treasury
32
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We were concerned about the impact of Making Tax Digital on the smaller taxpayer, such as a retired person with rental income from one property. We noted that other administrative tax changes, such as on-line self-assessment, have not provided expected benefits to taxpayers because of problems with software.58 We pointed …
Government response. 7: PAC conclusion: The benefits of Making Tax Digital to those with simple tax affairs are not clear. 7: PAC recommendation: HMRC should, in its Treasury Minute response, explain how the introduction of Making Tax Digital will be made easier, …
HM Treasury
33
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We asked about the support and software that would be available to small taxpayers. HMRC said it was gearing up to support customers but that it would not be delivering software itself. Nevertheless it had received pledges from industry that they would, as they did for VAT, provide free-at-point-of-service software …
Government response. 7: PAC conclusion: The benefits of Making Tax Digital to those with simple tax affairs are not clear. 7: PAC recommendation: HMRC should, in its Treasury Minute response, explain how the introduction of Making Tax Digital will be made easier, …
HM Treasury
34
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We have long-standing concerns about HMRC’s estates strategy. In April 2017, long before COVID-19, this Committee raised concerns about HMRC locking government into holding larger properties for longer than needed. The Committee raised similar concerns again in January and April 2018. In January 2021, we concluded that HMRC’s estate strategy …
Government response. 8: PAC conclusion: Changed working practices have left HMRC with more office space than it needs. 8a: PAC recommendation: HMRC should: • work with Cabinet Office to draw up a plan for how they intend to make sure that spare …
HM Treasury
35
Conclusion
Thirty-Seventh Report - HMRC Performanc…
Given the change in HMRC’s need for office space, and wider changes in the commercial property market, we asked HMRC whether its estate strategy was right for the future. HMRC told us its strategy was the right one and was part of making HMRC fit for the future by providing …
Government response. 8: PAC conclusion: Changed working practices have left HMRC with more office space than it needs. 8a: PAC recommendation: HMRC should: • work with Cabinet Office to draw up a plan for how they intend to make sure that spare …
HM Treasury
36
Conclusion
Thirty-Seventh Report - HMRC Performanc…
We asked about the Cabinet Office’s role in co-ordinating government office space. HMRC said it relies on the controls operated by the Cabinet Office, who look at all new property deals and lease extensions, and make sure those needing space are pointed at HMRC’s buildings. HMRC said space would be …
Government response. 8.4 The government disagrees with the Committee’s recommendation. 8.5 HMRC have reviewed its space requirements following their shift to hybrid office-home working, to establish any surplus capacity, and will continue to manage this to ensure estate capacity aligns with current …
HM Treasury