Recommendations & Conclusions
6 items
9
Conclusion
23rd Report - The cost of the tax system
We asked HMRC about the cost implications of running the Scottish Income Tax system. HMRC said the way it administers Scottish Income Tax is same as for UK Income Tax. The Scottish Government pays for the “bit more money” HMRC spends on IT and accounting needed, for example, to make …
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We asked HMRC about the cost implications of running the Scottish Income Tax system. HMRC said the way it administers Scottish Income Tax is same as for UK Income Tax. The Scottish Government pays for the “bit more money” HMRC spends on IT and accounting needed, for example, to make sure that it accounts for Scottish Income Tax separately. It said that the additional rate band in Scotland makes its Income Tax system slightly more complex which might generate more customer contact, but this was at the margins.14
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HM Treasury
17
Conclusion
23rd Report - The cost of the tax system
We asked HMRC why it provided additional support to large business. HMRC told us customer compliance managers were there to manage the risks large business pose to tax revenue and not to give them a better 25 HMRC has reported the change for small businesses was not statistically significant, year …
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We asked HMRC why it provided additional support to large business. HMRC told us customer compliance managers were there to manage the risks large business pose to tax revenue and not to give them a better 25 HMRC has reported the change for small businesses was not statistically significant, year on year. C&AG’s Report, para 3.3 26 Qq 33, 35 27 HMRC, The HMRC Charter, updated 30 July 2024 28 C&AG’s Report, para 3.18 29 HMRC, HMRC internal manual: Customs Civil Penalties Guidance, updated 28 October 2024, section CCPG21500–HMRC roles: role of Customer Compliance Manager 30 HMRC, HMRC’s compliance approach for large businesses, updated 10 April 2024, section Customer Compliance Managers 12 service. It said its approach was to “man–mark” each large business to understand the risks they pose and their attitude to tax compliance, and then decide the resources HMRC need to deploy to tackle the risks.31 31 Q 25 13 2 HMRC’s compliance performance and use of technology HMRC’s compliance performance
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HM Treasury
19
Conclusion
23rd Report - The cost of the tax system
Not Addressed
HMRC explained that its strategy is to promote good compliance and prevent non–compliance (collectively known as ‘upstream’ compliance), and this is “bearing fruit,” with upstream yield increasing to about a third of all yield in 2023–24. HMRC considers that upstream compliance is less costly than ‘downstream’ work (carried out in …
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HMRC explained that its strategy is to promote good compliance and prevent non–compliance (collectively known as ‘upstream’ compliance), and this is “bearing fruit,” with upstream yield increasing to about a third of all yield in 2023–24. HMRC considers that upstream compliance is less costly than ‘downstream’ work (carried out in response to suspected non–compliance), although downstream work continues to be necessary.33 HMRC acknowledged that it does not currently have sufficient analysis of how its costs fall between upstream and downstream compliance or the marginal returns from adding compliance resource.34 HMRC also told us that it has been investing in digital support for its compliance work to help it better target cases, thereby improving compliance productivity and the experience of compliant customers by reducing checks on them.35
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Government response AI summary
The government claims the recommendation is implemented but does not address the committee's observation that HMRC lacks sufficient analysis of costs and marginal returns between upstream and downstream compliance work, instead providing updates on compliance yield and staff recruitment.
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HM Treasury
31
Conclusion
23rd Report - The cost of the tax system
We asked HMRC whether there were potential security concerns that could be posed by the third–party MTD software taxpayers use to submit their tax returns, including whether there were risks to HMRC’s own systems.63 In written evidence provided after our evidence session, HMRC told us it takes security very seriously. …
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We asked HMRC whether there were potential security concerns that could be posed by the third–party MTD software taxpayers use to submit their tax returns, including whether there were risks to HMRC’s own systems.63 In written evidence provided after our evidence session, HMRC told us it takes security very seriously. It said all data sent to HMRC systems is monitored for fraud prevention, and to ensure that customer data is safe. It also said that it sets out strict specifications for third–party MTD software products in terms of cyber–security and the security, storage, management and processing of customer data.64
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HM Treasury
38
Conclusion
23rd Report - The cost of the tax system
Not Addressed
The written evidence received from Dr Edidiong Offiong Bassey also suggests that HMRC is not making the best use of technology. In particular, he indicated there has been limited promotion in the UK of electronic invoicing and electronic fiscal devices which have seen 71 CTS0001 72 Q 48 73 Q …
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The written evidence received from Dr Edidiong Offiong Bassey also suggests that HMRC is not making the best use of technology. In particular, he indicated there has been limited promotion in the UK of electronic invoicing and electronic fiscal devices which have seen 71 CTS0001 72 Q 48 73 Q 49 74 Qq 45–46 75 Q 12 76 Comptroller and Auditor General, Progress with Making Tax Digital, Session 2022–23, HC 1319, National Audit Office, June 2023, Figure 11 & para 3.36 77 Infrastructure and Projects Authority, Annual Report 2023–24, January 2025, p 37 20 positive results elsewhere.78 Some countries require businesses to use e–invoices for at least some transactions.79 E–invoicing can have a big impact on simplifying communications and reducing non–compliance.80
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Government response AI summary
The government agrees generally with the "recommendation" (implied, as the item is a conclusion) and outlines HMRC's existing and planned initiatives using AI, including chatbots, Copilot, and call summarisation tools, without specifically addressing the conclusion's point about electronic invoicing and fiscal devices.
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HM Treasury
39
Conclusion
23rd Report - The cost of the tax system
Not Addressed
We asked HMRC about its joint consultation with the Department for Business & Trade on e–invoicing which it launched in February 2025. HMRC said e–invoicing has the potential to help businesses and build tax compliance into the way they run their business. We asked what was being covered in the …
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We asked HMRC about its joint consultation with the Department for Business & Trade on e–invoicing which it launched in February 2025. HMRC said e–invoicing has the potential to help businesses and build tax compliance into the way they run their business. We asked what was being covered in the consultation. HMRC said the consultation included asking businesses and customers about what information should be reported to HMRC.81 78 CTS0001 79 HM Revenue & Customs and Department for Business & Trade, Electronic invoicing: promoting e–invoicing across UK businesses and the public sector, February 2025, Section What is e–invoicing. 80 C&AG’s Report, para 3.12 81 Qq 26, 70 21
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Government response AI summary
The government's response focuses entirely on HMRC's use of AI and its initiatives in this area, without addressing the committee's observation or implicit query about e-invoicing.
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HM Treasury