Select Committee · Public Accounts Committee

HMRC Annual Accounts 2020-21

Status: Closed Opened: 21 Oct 2021 Closed: 26 Apr 2022 14 recommendations 21 conclusions 1 report

The Committee will hold its annual evidence hearing with senior HMRC officials on the overall position of UK tax revenues and how HMRC manages the taxation ‘tools’ at its disposal to achieve policy ends; the ‘tax gap’ of taxes owed which are not collected through error, avoidance or evasion; the administration of Covid support schemes … Show more

Reports

1 report
Title HC No. Published Items Response
Thirty-Seventh Report - HMRC Performance in 2020–21 HC 641 11 Feb 2022 35 Responded

Recommendations & Conclusions

35 items
2 Recommendation Thirty-Seventh Report - HMRC Performanc… Accepted

HMRC does not understand the reasons for the growth in the cost of research and...

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 … Read more

Government response AI summary
HMRC is carrying out further analysis to understand the reasons for the growing cost of R&D tax relief, working with ONS to understand expenditure differences, and the R&D Mandatory Random Enquiry Programme (MREP) will provide a more robust estimate.
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HM Treasury
3 Recommendation Thirty-Seventh Report - HMRC Performanc… Not Addressed

HMRC does not have a convincing plan for restoring compliance activity back to pre-pandemic levels.

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 … Read more

Government response AI summary
This is a response to a different conclusion about the SEND review.
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HM Treasury
4 Recommendation Thirty-Seventh Report - HMRC Performanc… Accepted

Resource constraints are limiting HMRC’s ability to get the optimum level of compliance yield.

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 … Read more

Government response AI summary
HMRC is funded to reduce the tax gap and constantly adjusts resource allocation based on expected yield and risks. The 2021 Spending Review gave it an additional £180 million over three years for "spend to raise".
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HM Treasury
5 Recommendation Thirty-Seventh Report - HMRC Performanc… Accepted

It is too easy for taxpayers to be unwittingly lured into tax avoidance schemes.

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 … Read more

Government response AI summary
HMRC will continue to build on its strategy to raise awareness and help taxpayers steer clear of avoidance through targeted communications, early interventions, and work with professional bodies. New powers introduced in Finance Act 2022 enable HMRC to name promoters and schemes early.
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HM Treasury
6 Recommendation Thirty-Seventh Report - HMRC Performanc… Accepted

Yet again customer service has collapsed and HMRC’s recovery plans are not clear.

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 … Read more

Government response AI summary
HMRC will explain the service levels it is aiming to provide and by when, including for the time taken to answer calls and respond to post, and commit to publishing outturn against these measures; this information will be presented in the Department’s Outcome Delivery Plan, …
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HM Treasury
7 Recommendation Thirty-Seventh Report - HMRC Performanc… Acknowledged

The benefits of Making Tax Digital to those with simple tax affairs are not clear.

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 … Read more

Government response AI summary
HMRC has worked hard to minimise the costs and maximise the benefits of MTD, committing to free software for the MTD Income Tax Self-Assessment (ITSA) service for those with the most straightforward affairs and working closely with stakeholders to improve the support offering to those …
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HM Treasury
8 Recommendation Thirty-Seventh Report - HMRC Performanc… Accepted in Part

Changed working practices have left HMRC with more office space than it needs.

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 … Read more

Government response AI summary
HMRC will work with the Government Property Agency and the Places for Growth Programme in the Cabinet Office to ensure that any surplus office space in staffed buildings across the HMRC estate is not left vacant, and will report back to the Committee by the …
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HM Treasury
9 Conclusion Thirty-Seventh Report - HMRC Performanc… Acknowledged

In its evidence to us, TaxWatch said the legacy of the employment support schemes risks...

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 … Read more

Government response AI summary
The government agrees no amount of error and fraud is acceptable, but not all money lost to error and fraud is detectable and recoverable, so HMRC will prioritize egregious cases but not actively search for people who made honest mistakes.
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HM Treasury
10 Conclusion Thirty-Seventh Report - HMRC Performanc… Accepted

HMRC is responsible for administering Corporation Tax research and development (R&D) reliefs, which support companies...

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 … Read more

Government response AI summary
HMRC is carrying out further analysis to understand the reasons for the growing cost of Research & Development (R&D) tax relief and is working with the Office for National Statistics (ONS) to better understand expenditure. A Mandatory Random Enquiry Programme (MREP) will provide a more …
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HM Treasury
11 Conclusion Thirty-Seventh Report - HMRC Performanc… Acknowledged

The cost of R&D tax reliefs has grown by 241% over the last four years...

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 … Read more

Government response AI summary
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 number and average value of claims, and is working with the Office for National Statistics (ONS) to better understand …
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HM Treasury
13 Recommendation Thirty-Seventh Report - HMRC Performanc… Accepted

HMRC estimates that error and fraud in R&D tax reliefs was £336 million in 2020–...

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 … Read more

Government response AI summary
HMRC is designing and implementing a package of R&D reform measures announced at Autumn Budget 2021 aimed at tackling abuse and improving compliance by April 2023, including introducing a cross-cutting team of c50 FTE focused on abuse in partnership with HMRC’s Fraud Investigation Service, requiring …
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HM Treasury
14 Conclusion Thirty-Seventh Report - HMRC Performanc… Acknowledged

We asked HMRC how much of the increase in the cost of R&D tax reliefs...

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 … Read more

Government response AI summary
The government agrees with the Committee’s recommendation and plans to implement R&D reform measures, including a cross-cutting team focused on abuse, digital claims with more detail, a customer education program, and enhancements to HMRC’s risk profiling.
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HM Treasury
15 Conclusion Thirty-Seventh Report - HMRC Performanc… Accepted

Given the uncertainties in HMRC’s current estimates of error and fraud in R&D relief claims,...

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 … Read more

Government response AI summary
HMRC is designing and implementing R&D reform measures aimed at tackling abuse and improving compliance by April 2023, including a cross-cutting team, digital claims with senior officer endorsement, customer education, and enhanced risk profiling. The Mandatory Random Enquiry Programme results will inform these activities.
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HM Treasury
16 Conclusion Thirty-Seventh Report - HMRC Performanc… Accepted

HMRC estimated that compliance yield from its tax compliance activities in 2020– 21 was £30.4...

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 … Read more

Government response AI summary
The government outlines specific steps HMRC is taking to address reduced compliance, including resolving deferred interventions, recruiting an additional 4200 full-time equivalent staff for 2021-22, and focusing on maintaining the tax gap and sustained compliance in 2022-23.
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HM Treasury
17 Conclusion Thirty-Seventh Report - HMRC Performanc… Accepted

We asked HMRC whether it was going to return to the cases it had not...

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 … Read more

Government response AI summary
HMRC stated it is already actively working, or has resolved, the vast majority of compliance interventions where action was deferred to support customers during the pandemic, and that it has recruited a further 4200 FTE in 2021-22 who will complete their training in 2022-23.
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HM Treasury
18 Conclusion Thirty-Seventh Report - HMRC Performanc… Acknowledged

We raised our concerns with HMRC that the impact of COVID-19 will make it difficult...

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 … Read more

Government response AI summary
The government agrees with the Committee’s recommendation and states that HMRC took on significant additional responsibilities during the pandemic and will report compliance activity in the Annual Report and Accounts.
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HM Treasury
19 Conclusion Thirty-Seventh Report - HMRC Performanc… Acknowledged

HMRC’s annual report shows that it spent over £1.5 billion on compliance activities in 2020–21.31...

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, … Read more

Government response AI summary
The government agrees with the Committee’s recommendation, and HMRC are funded to reduce the tax gap through core ‘business as usual’ funding and additional “spend to raise.
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HM Treasury
20 Conclusion Thirty-Seventh Report - HMRC Performanc… Acknowledged

We asked HMRC whether it would generate more revenue if it concentrated more of its...

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 … Read more

Government response AI summary
HMRC stated payback was a key factor when deciding how to deploy its resources, but not the only one, adding that the marginal yield from additional compliance spending would not necessarily be as high as average yield.
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HM Treasury
21 Conclusion Thirty-Seventh Report - HMRC Performanc… Acknowledged

In its evidence to us TaxWatch argued for a substantial investment in tax compliance to...

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 … Read more

Government response AI summary
HMRC is funded to reduce the tax gap through core ‘business as usual’ funding and additional “spend to raise
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HM Treasury
22 Recommendation Thirty-Seventh Report - HMRC Performanc… Accepted

HMRC told us the nature of tax avoidance has changed.

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 … Read more

Government response AI summary
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, early interventions, refreshed campaign, publications, articles, letters to taxpayers, work with professional bodies, shut down websites and published information about …
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HM Treasury
23 Conclusion Thirty-Seventh Report - HMRC Performanc… Acknowledged

We are concerned about how taxpayers are protected from those who promote avoidance schemes, and...

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 … Read more

Government response AI summary
HMRC continues to build on the strategy outlined in ‘Tackling promoters of mass- marketed tax avoidance schemes’ published in March 2020, including raising awareness and helping taxpayers steer clear of avoidance through targeted communications and early interventions, and refreshed their ‘Tax avoidance – don’t get …
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HM Treasury
24 Conclusion Thirty-Seventh Report - HMRC Performanc… Accepted

We asked HMRC whether it could do more to publicise its successes, including the naming...

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 … Read more

Government response AI summary
HMRC stated it continues to build on the strategy outlined in ‘Tackling promoters of mass- marketed tax avoidance schemes’ published in March 2020. This includes raising awareness, early interventions, refreshed campaign, publications, articles, letters to taxpayers, work with professional bodies, shut down websites and published …
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HM Treasury
25 Conclusion Thirty-Seventh Report - HMRC Performanc… Not Addressed

This Committee has regularly examined HMRC’s customer service performance.

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 … Read more

Government response AI summary
The government agrees with the Committee’s recommendation to explain the service levels it is aiming to provide and commit to publishing outturn against these measures; this information will be presented in the Department’s Outcome Delivery Plan, to be published early in 2022-23.
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HM Treasury
26 Recommendation Thirty-Seventh Report - HMRC Performanc… Accepted

We asked HMRC why response times were very poor at the end of 2020–21.

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 … Read more

Government response AI summary
HMRC have been working through the stocks of correspondence and expects to reduce to pre-pandemic levels, with performance recovering by the start of 2022-23. Expected performance levels and commitments for 2022-23 will be presented in the Department’s Outcome Delivery Plan.
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HM Treasury
27 Conclusion Thirty-Seventh Report - HMRC Performanc… Not Addressed

HMRC told us that its performance was improving in 2021–22.

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 … Read more

Government response AI summary
The government agrees with the Committee’s recommendation to explain the service levels it is aiming to provide and commit to publishing outturn against these measures; this information will be presented in the Department’s Outcome Delivery Plan, to be published early in 2022-23.
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HM Treasury
28 Recommendation Thirty-Seventh Report - HMRC Performanc… Accepted

We asked HMRC why call handling performance had been declining before COVID-19.

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 … Read more

Government response AI summary
HMRC will present its expected performance levels and commitments for 2022-23 in the Department’s Outcome Delivery Plan, to be published early in 2022-23 and publish performance data monthly and quarterly, including AAH, ASA and correspondence percentages.
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HM Treasury
29 Conclusion Thirty-Seventh Report - HMRC Performanc… Accepted

For 2021–22, HMRC has replaced most of its response time measures with metrics of whether...

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 … Read more

Government response AI summary
HMRC have been working through the stocks of correspondence and expects to reduce to pre-pandemic levels, with performance recovering by the start of 2022-23. Expected performance levels and commitments for 2022-23 will be presented in the Department’s Outcome Delivery Plan. They publish performance data monthly …
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HM Treasury
30 Conclusion Thirty-Seventh Report - HMRC Performanc… Acknowledged

HMRC’s Making Tax Digital initiative is central to its 10-year modernisation strategy.

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 … Read more

Government response AI summary
HMRC has worked hard to minimise the costs and maximise the benefits of MTD, committing to free software for the MTD Income Tax Self-Assessment (ITSA) service for those with the most straightforward affairs and working closely with stakeholders to improve the support offering to those …
Read full response →
HM Treasury
31 Conclusion Thirty-Seventh Report - HMRC Performanc… Not Addressed

We asked HMRC what Making Tax Digital was for.

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 … Read more

Government response AI summary
The government is committed to free software for the MTD Income Tax Self-Assessment (ITSA) service for those with the most straightforward affairs, removing one of the financial barriers to participating in MTD, and will improve the support offering to those who may be unrepresented or …
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HM Treasury
32 Conclusion Thirty-Seventh Report - HMRC Performanc… Acknowledged

We were concerned about the impact of Making Tax Digital on the smaller taxpayer, such...

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 … Read more

Government response AI summary
HMRC noted that its evaluation suggested that VAT traders found that Making Tax Digital had made dealing with their tax affairs easier, and pointed out that self- employed taxpayers with income under £10,000 a year would not be mandated to be part of Making Tax …
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HM Treasury
33 Recommendation Thirty-Seventh Report - HMRC Performanc… Accepted

We asked about the support and software that would be available to small taxpayers.

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 … Read more

Government response AI summary
The government is committed to free software for the MTD Income Tax Self-Assessment (ITSA) service for those with the most straightforward affairs, removing one of the financial barriers to participating in MTD, and will improve the support offering to those who may be unrepresented or …
Read full response →
HM Treasury
34 Recommendation Thirty-Seventh Report - HMRC Performanc… Accepted

We have long-standing concerns about HMRC’s estates strategy.

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 … Read more

Government response AI summary
HMRC will work with the Government Property Agency and the Places for Growth Programme in the Cabinet Office to ensure that any surplus office space in staffed buildings across the HMRC estate is not left vacant, and will report back to the Committee by the …
Read full response →
HM Treasury
35 Recommendation Thirty-Seventh Report - HMRC Performanc… Accepted

Given the change in HMRC’s need for office space, and wider changes in the commercial...

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 … Read more

Government response AI summary
HMRC will work with the Government Property Agency (GPA) and the Places for Growth Programme in the Cabinet Office to ensure that any surplus office space in staffed buildings across the HMRC estate is not left vacant and will report back to the Committee by …
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HM Treasury
36 Conclusion Thirty-Seventh Report - HMRC Performanc… Rejected

We asked about the Cabinet Office’s role in co-ordinating government office space.

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 … Read more

Government response AI summary
The government disagrees with the Committee’s recommendation, stating that HMRC has reviewed its space requirements and has had significant success in working with GPA to enable other government departments to occupy the space.
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HM Treasury

Oral evidence sessions

1 session
Date Witnesses
1 Dec 2021 Angela MacDonald · HMRC, Jim Harra · HMRC, Joanna Rowland · Home Office, Justin Holliday · HMRC View ↗

Who gave evidence

4 witnesses
WitnessOrganisationSessions
Angela MacDonald · Deputy Chief Executive and Second Permanent Secre… HMRC 1
Jim Harra · Permanent Secretary and Chief Executive HMRC 1
Joanna Rowland · Director General, Customer Services Group Home Office 1
Justin Holliday · Chief Finance Officer HMRC 1

Correspondence

2 letters
DateDirectionTitle
25 Apr 2022 Correspondence from Jim Harra, Chief Executive and First Permanent Secretary, r…
25 Apr 2022 Correspondence from Jim Harra, Chief Executive and First Permanent Secretary, r…