HMRC Customer Service and Accounts 2023-24

HMRC’s digital services have not sufficiently reduced demand on the phone and HMRC has failed to prioritise the resources needed to sustain an appropriate standard of telephone service. HMRC has been working to become a ‘digital-first’ organisation since 2010 and hopes to replace traditional forms of contact with digital services. However, telephone 3 demand has remained high, with 37 million telephone calls in 2023–24. HMRC says it has not had enough resources to deal with all the contact it has been receiving with, for example, 3 million more income taxpayers in the last two years as a result of freezing tax thresholds. In May 2024, HMRC received £51 million additional funding to cover approximately 1,500 staff for 2024–25 to bring HMRC’s customer service to target levels. However, we are concerned that performance will deteriorate again if HMRC struggles to meet further increases in demand from customers. HMRC plans to publish a ‘digital roadmap’ in Spring 2025 to set out the digital services it is expecting to develop and the investment it needs. recommendation HMRC should ensure it allocates sufficient resources to customer service now and in the future to meet its performance targets. It should establish “guard rails” to protect services. Where service levels fall more than five percentage points below target levels this should trigger a corrective response, with additional resources deployed if needed.

HMRC has been too willing to let its telephone services fail in the hope this forces people to use its digital services instead. HMRC estimates 66% of calls it receives could be handled online instead. It hopes that by encouraging customers to use digital services it can free up its helplines for vulnerable customers and customers with complex affairs who need to speak to an adviser. However, not all services are available online, and where they are available they do not always provide the reassurance that customers need. HMRC has been too quick to restrict access to its telephone services before ensuring replacement digital services are fully in place. In 2023, it trialled some helpline closures with only two days’ notice to taxpayers, and reversed a decision to close them permanently from April 2024 following criticism from stakeholders. HMRC said it recognises that not everybody can go online and that vulnerable customers may need additional support. It has increased the number of staff supporting vulnerable customers by 20% and has provided £5.5 million additional funding to community and voluntary organisations. recommendation HMRC should ensure it understands how far its digital services can replace telephone services and what level of telephone service it needs to retain to meet customers’ needs - including those of small businesses. HMRC should ensure it meets a minimum level of service for all customers, including those 7 million customers HMRC estimates can’t use digital services. 4

HMRC does not provide an efficient means for taxpayers to communicate digitally with HMRC. In 2022–23, HMRC received 22 million items of correspondence, including physical post and forms and interactive forms. Approximately 70% of this comes in through the post. Postal correspondence, as well as some electronic correspondence, requires scanning, manual entry into HMRC’s systems, or both. In the past HMRC has faced large backlogs in processing its correspondence, clearing only 45.5% in 2021–22 within 15 working days of receipt. HMRC’s performance improved to 76.3% in 2023–24 but was still below its target of 80%. HMRC also posts a lot of correspondence itself, spending £68 million on postage and print costs in 2022–23. HMRC said it has used emails with customers sparingly due to security concerns, but it has made little progress in developing alternative secure ways for customers to share information with it electronically. It acknowledges it is clearly behind many other organisations in providing the ability for customers to securely message HMRC digitally. It says that it envisages customers doing this more through the HMRC App and the Personal Tax Account, and is seeking investment for this development as part of its ‘digital roadmap’. recommendation As part of its digital roadmap, HMRC should prioritise introducing systems for customers to submit files and send secure messages electronically to HMRC. This should enable savings which can be recycled into improving its service.

HMRC’s investment in debt management has not sufficiently reduced the amount of tax owed to it. In 2023–24, the government announced £303 million additional funding for HMRC to improve its capacity to manage tax debts. This followed £47.2 million announced in 2022–23. Despite this investment, the tax debt balance fell only marginally in 2023–24, from £43.9 billion at 31 March 2023 to £43.0 billion at 31 March 2024. This is still much higher than the five years before the pandemic, where tax debt was typically around £15 billion. HMRC is still seeing high levels of new tax debt, largely driven by small businesses’ cash flow issues. HMRC says its efforts are focused on pursuing these new debts, which are easier to collect. We are concerned, though, that HMRC is not effectively pursuing older debts. It has estimated it may not be able to collect 45% of established taxpayer liabilities not yet received. In 2023–24, HMRC wrote off £5.0 billion of debts as uncollectable, an increase from £3.2 billion in 2022–23. HMRC expects the amount of write-offs to remain high in 2024–25 as the impact of the pandemic on insolvencies continues to work its way through the criminal justice and tax systems. In the 2024 Autumn Budget, HMRC received funding for 1,800 more debt management staff. 5 recommendation Now that HMRC has secured even more resources to manage the debts owed to it, it should set out what reduction in the debt balance it is aiming for and by what date, and a plan for how it will recover older debts before they become uncollectable.

We welcome HMRC’s new goal to reduce the tax gap but we are concerned that it still plans to reduce the number of prosecutions. HMRC expects to bring in £6.5 billion additional tax revenue by 2029–30 as a result of measures set out at the Autumn Budget 2024, and has funding for 5,000 additional compliance officers. However, it could not tell us how much this will reduce the tax gap. HMRC has published experimental statistics on the offshore tax gap, but admits this is not a complete measure. At £0.3 billion we are concerned HMRC’s estimate looks implausibly low and that there is no way of making an accurate estimate. We are also concerned that HMRC is not doing enough to tackle deliberate cases of non-compliance. HMRC can use civil processes to sanction non-compliance, but its use of criminal investigation and prosecution is decreasing, and there were only 344 criminal prosecutions in 2023–24, compared with 691 in 2019–20, with HMRC focusing on the most serious and high-value cases. We are concerned that HMRC is not using the criminal enforcement tools at its disposal. There have never been any prosecutions under the criminal facilitation of tax evasion offence. The number of HMRC investigations into serious tax fraud and avoidance has fallen to a six-year low. HMRC is examining the deterrent effect of criminal investigations and prosecutions to understand their effectiveness in recovering tax. recommendation Now that HMRC has been tasked with reducing rather than just maintaining the tax gap, it must be bolder in identifying and tackling abuse. HMRC should: a. set ambitious targets for compliance yield that would allow it to achieve annual reductions in the tax gap; b. obtain an estimate that is as accurate as feasibly and practically possible of the offshore tax gap and develop a standalone strategy to reduce it; and c. research which interventions are most effective in achieving a deterrent effect for tax evaders and organised criminals. This research should expl

On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Revenue & Customs (HMRC) on its performance in 2023– 24 and its customer service.1

We asked whether HMRC provides customers with information on expected call waiting times. It said it provides this information on many of its helplines, but the information is limited to the average call waiting time from the previous day rather than a current waiting time. HMRC explained this was another limitation of its telephone platform.12 4 Customer service, paras 3, 12 5 Customer service, para 1.5 6 Report on 2023–24 Accounts, para 8; Customer service, para 4 7 HMRC Customer Service and Accounts 2023–24 - Written evidence - Committees - UK Parliament 8 Customer service, para 1.9 9 Q 51 10 Q 54 11 Q 58 12 Qq 57, 67-68 8 Resources for meeting customer demand on the telephone

HMRC has been working to become a ‘digital-first’ organisation since 2010 and hopes to replace traditional forms of contact with digital services.13 It said its research shows that 86% of customers say they are willing to deal with HMRC digitally or would prefer to do so.14 Despite this, HMRC still received 36.7 million telephone calls in 2023–24.15 It said it will be publishing a digital services roadmap in Spring 2025 to set out the digital services it is expecting to develop and the investment it needs.16

HMRC says it has not had enough resources to deal with all the contact it has been receiving.17 It estimates that in the last two years, the number of taxpayers in the income tax system has increased by 3 million as a result of the freezing of income tax thresholds. HMRC also explained that more taxpayers are in more complex parts of the tax system, such as paying capital gains tax or higher rates of income tax.18

In May 2024, HMRC received £51 million additional funding, to cover approximately 1,500 staff for 2024–25, to bring its customer service to target levels for answering 85% of customers’ attempts to speak to an adviser on the telephone and for handling 80% of correspondence within 15 working days.19 It said it achieved its target for telephone performance in October 2024 and expects to sustain it for the remainder of 2024–25 and for 2025– 26.20 13 Customer service, paras 21, 2.1 14 Q 73 15 Customer service, para 1.24 16 Q 74 17 Q 81 18 Q 12 19 Report on 2023–24 Accounts, para 9 20 Q 48 9 2 Moving customers to digital services Developing effective digital services

HMRC said that approximately 70% of interactions with it are digital.21 Since 2015, it has introduced several digital services, including Personal and Business Tax Accounts, an app, and its flagship Making Tax Digital programme for VAT.22 In 2022–23, customers accessed online Personal and Business Tax Accounts and the HMRC app 199 million times, up from 62 million in 2016–17.23 HMRC said that in many instances digital services provide very high satisfaction rates.24 In 2023–24, 83.1% of customers surveyed reported they were satisfied after using a digital service.25

While the use of digital services has increased, HMRC still estimates that 66% of telephone calls could have been handled online. HMRC said this partly reflects customer awareness of the extent of its digital services. It started a campaign in November 2024 to increase awareness, particularly of its mobile app.26 HMRC said it also reflects a lack of customer confidence, with customers wanting reassurance over the phone that, for example, they have done something correctly online. It said it is increasing the digital communication with its customers, for example by sending SMS messages to Child Benefit claimants to confirm it has received the claim.27 However, HMRC also recognised that not all services are available online and not all customers can go online.28 HMRC estimates around 20% of its customers, or 7 million people, need assistance to use its digital services.29 HMRC said it has increased its support for vulnerable customers by around 20% and has provided £5.5 million of funding to community and voluntary organisations for customer outreach and support.30 21 Q 72 22 Customer service, Figure 7 23 Customer service, para 2 24 Q 54 25 Report on 2023–24 Accounts, para 8 26 Q 73 27 Q 73 28 Q 55 29 Customer service, para 13 30 Q 88 10

HMRC closed or reduced the queries it handles on four helplines in 2023–24. For the largest change, the trial closure of the Self Assessment helpline in summer 2023, it gave customers only two working days’ notice.31 HMRC said it was not entirely clear what customers would have gained from having more notice.32 In March 2024, HMRC announced further closures and restrictions it would make in 2024–25, but reversed this decision just one day after announcing the changes to the public, following criticism from stakeholders.33 HMRC said it was trying to prioritise the contact it dealt with, for example with vulnerable customers, while pushing other customers to go online.34 HMRC said it already knew about a high degree of public scepticism about whether people would be able to get the online services they needed while helplines were closed.35 HMRC said that it had no plans for any further helpline closures or restrictions.36 Electronic messaging and file submission

HMRC received 22 million items of correspondence in 2022–23, including physical post and forms and interactive forms.37 Around 70% of correspondence comes in through the post. To process postal correspondence, as well as some electronic correspondence, HMRC must scan or manually enter the information into its systems, or both.38 HMRC has not met an annual performance target for processing correspondence since 2018–19.39 In 2023–24, HMRC cleared 76.3% of correspondence within 15 working days, up from 45.5% in 2021–22 but still below its target of 80%.40 In 2022–23, HMRC spent £68 million on postage and print costs.41

HMRC said it uses email sparingly due to security concerns.42 Several organisations representing taxpayers and their agents wrote to us to highlight the need for a secure digital way to share files and correspondence with HMRC so that communication by post and phone became the exception.43 HMRC acknowledged that it is clearly behind many other 31 Customer service, paras 17, 3.7 32 Q 92 33 Report on 2023–24 Accounts, para 9 34 Q 81 35 Q 82 36 Q 92 37 Customer service, Figure 1 38 Customer service, para 2.28 39 Customer service, para 1.5 40 Report on 2023–24 Accounts, Figure 6 41 Customer service, para 1.14 42 Q 78 43 HCSA0003 Written evidence submitted by Institute of Chartered Accountants in England and Wales; HCSA0005 Written evidence submitted by Association of Taxation Technicians 11 organisations in providing this facility.44 It said it has been exploring ways to digitise its postal services and liaising with other government bodies through the Central Digital and Data Office in the Department for Science, Innovation and Technology and the Government Digital Service.45 It said it envisages customers using the HMRC App and the Personal Tax Account for more secure messaging, and is seeking investment for this development as part of its ‘digital roadmap’.46 44 Q 79 45 Q 80 46 Qq 78-79 12 3 Collecting more revenue Managing tax debt

The amount of tax debt owed by taxpayers to HMRC fell only marginally in 2023–24, from £43.9 billion at 31 March 2023 to £43.0 billion at 31 March 2024 (5.1% of annual tax revenues). This compares with a debt balance of typically £15 billion in the five years before the pandemic, or 2.5% of tax revenues. HMRC has estimated it may not be able to collect 45% of the established tax liabilities not yet received from taxpayers. In 2023–24, it wrote off £5.0 billion of debt, an increase from £3.2 billion in 2022–23.47 HMRC said that most of its write-offs are when taxpayers become insolvent, and that delays in the courts and a suspension on insolvencies as a result of the pandemic created lower-than-expected levels of write-offs in previous years. It expects write-offs to increase again in 2024–25 as these insolvencies then work through the system.48

HMRC said it is still seeing very high levels of new debt coming into the system, largely as a result of cash-flow issues in small businesses.49 In the Autumn Budget 2024 it received funding for a further 1,800 debt management staff. This follows an additional £303 million in 2023–24 and £47.2 million in 2022–23 to improve its capacity to manage tax debts.50 HMRC said it will target the additional staff at these new debts, with staff mainly on HMRC’s debt helpline and a small amount on enforcement activities.51

As HMRC’s debts get older, they are less likely to be repaid.52 HMRC stressed the importance of tackling the new debt before it ages.53 We asked whether HMRC has a new approach planned for tackling older debts.54 It said it 47 Report on 2023–24 Accounts, para 7 48 Qq 37-38 49 Q 34 50 Report on 2023–24 Accounts, para 7; C&AG’s Report, HM Revenue & Customs Annual Report and Accounts 2022–23, Session 2022–23, HC 1466, 17 July 2023, para 1.14 51 Qq 35-36 52 Report on 2023–24 Accounts, para 7 53 Q 36 54 Qq 36-37 13 has investment for getting better data from credit reference agencies and better customer insights, which it will use to tailor its interventions on older debts based on customer behaviour and the type of customer.55 Reducing the tax gap

HMRC estimates that the tax gap–the difference between the amount of tax that should be paid to HMRC, and what was actually paid–increased from £38.1 billion in 2021–22 to £39.8 billion in 2022–23 (the latest year for which HMRC has made an estimate). As a proportion of tax due, it decreased from 5.2% to 4.8%.56 HMRC has been given additional resources to bring in more tax revenue and reduce the tax gap further. In the Autumn Budget 2024 it was given funding for 5,000 additional compliance officers and it expects the measures set out will bring in approximately £6.5 billion additional tax revenues by 2029–30.57 It said additional staff will focus on tackling non- compliance among small businesses, who made up 60% of the tax gap in 2022–23, up from 37% in 2017–18.58 HMRC said these staff will initially be used to respond and investigate where taxpayers make mistakes or avoid or evade tax, although HMRC said tackling non-compliance among small businesses in this way is challenging given the large number of cases.59

HMRC was unable to say what impact the additional revenues it expects to bring in would have on the tax gap. It said it is not practical to set a target for the tax gap as it is measured more than a year after the end of the tax year and is then subject to revisions as more data become available. Instead, HMRC said its operational target was an annual target for compliance yield which, if delivered, should in turn reduce the tax gap, once that is also measured. 60 HMRC said this operational target for compliance yield, set at £45.5 billion for 2024–25, is stretching but that it hopes to achieve it.61

HMRC said that its calculation of the tax gap uses estimation and judgement, and that some parts of it are more certain than others.62 It said in October 2024 it published experimental statistics on the proportion of the tax gap that comes from foreign income. In monetary terms, HMRC 55 Q 36 56 Report on 2023–24 Accounts, para 5 57 Q 15 58 Q 19; Report on 2023–24 Accounts, para 5 59 Qq 16, 19, 33 60 Qq 21-22 61 Q 29 62 Q 20 14 estimated this at £0.3 billion. HMRC said this represents only one aspect of the offshore tax gap and is uncertain, and that the data published in 2024 relates to undeclared or under-declared tax in the year 2018–19.63

In 2023–24 there were 344 criminal prosecutions, compared with 691 in 2019–20, before the pandemic.64 HMRC said it is very successful in its criminal investigations and has a high conviction rate in its prosecutions, but that it tends to reserve their use for the most serious and higher- value cases 65 We asked HMRC whether failing to prosecute some criminal behaviour reduces the deterrent effect of HMRC’s criminal investigations and leads to a culture of non-compliance.66 HMRC accepted there was a risk that the deterrent effect could reduce.67 It said it was reviewing the academic research on this topic but said there was currently limited evidence about the deterrent effect of criminal investigation and prosecution, but that it could still impose significant sanctions using civil processes.68 63 Q 23 64 Report on 2023–24 Accounts, para 1.22 65 Qq 30, 39-40 66 Q 31 67 Q 31 68 Q 31 15