Recommendations & Conclusions
14 items
2
Recommendation
Thirty-Sixth Report - HMRC performance …
Accepted
A lack of certainty about the COVID-19 support schemes has undermined businesses’ ability to plan effectively. We recognise that it is not easy to provide support to everyone considering the unique circumstances of each individual and business. However, the uncertainties around the timings and details of schemes have made a …
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A lack of certainty about the COVID-19 support schemes has undermined businesses’ ability to plan effectively. We recognise that it is not easy to provide support to everyone considering the unique circumstances of each individual and business. However, the uncertainties around the timings and details of schemes have made a difficult situation more uncertain for those in need of urgent support. For example, HMRC could not provide clarity on whether the Job Retention Bonus scheme had been delayed or scrapped. Such lack of clarity may lead to unnecessary hardships for some businesses, who in good faith were relying on the payments from the scheme to meet some of their needs. HMRC’s lack of timely evaluation of schemes, such as the Eat Out to Help Out (EOTHO) scheme, to inform possible future iterations of the initiatives may also result in delays to their reintroduction and hinder their effectiveness. Recommendation: HMRC should, within six weeks of publication of this report, write to us to set out what lessons have been learned from the timing and content of its communications, such as about the future of the Job Retention Bonus scheme, and how those lessons might have improved the outcomes of the support schemes. 6 HMRC performance 2019–20
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Government response AI summary
The government accepts the recommendation, agreeing to write to the Committee by March 2021 to detail its communication approach for support schemes and outline lessons learned from timing and content, aiming to provide as much clarity and forewarning as possible.
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HM Treasury
3
Recommendation
Thirty-Sixth Report - HMRC performance …
Accepted
HMRC’s estate strategy risks becoming woefully out of date. Our long-standing concerns about HMRC’s non-breakable long-term property leases have become all the more relevant, and prescient, given the COVID-19 pandemic. In April 2017, long before COVID-19, we raised our concerns about HMRC locking government into holding larger properties for longer …
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HMRC’s estate strategy risks becoming woefully out of date. Our long-standing concerns about HMRC’s non-breakable long-term property leases have become all the more relevant, and prescient, given the COVID-19 pandemic. In April 2017, long before COVID-19, we raised our concerns about HMRC locking government into holding larger properties for longer than needed. We raised similar concerns again in January and April 2018. Yet HMRC persevered. HMRC’s view is that its regional centres are located in prime sites and it can, therefore, lease them out to the private sector and other government departments if they have spare capacity. We strongly believe this is an out of date assumption that needs urgent revision in light of changing economic conditions. It is commonly accepted that some significant changes in working practices, with more staff working flexibly and less need for traditional office space, are likely to be here to stay. Recommendation: In its Treasury Minute response, we expect HMRC to set out its future plans on how it will review its estate strategy in light of the impact of COVID-19 on the demand for commercial properties, to ensure it can demonstrate value for money from its considerable investment should demand remain suppressed.
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Government response AI summary
The government accepts the recommendation and aims for implementation by July 2021, stating it will review space requirements in light of the pandemic's impact. It asserts that its existing estate strategy already offers value for money with flexible lease terms, and commits to working with …
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HM Treasury
4
Recommendation
Thirty-Sixth Report - HMRC performance …
Accepted
The pandemic has significantly increased HMRC’s workload and made the organisation more complex. HMRC has had to reallocate a significant number of its staff to work in COVID-19-related roles. At its peak, in May 2020, HMRC reallocated more than 9,000 (16%) of its staff. HMRC is facing a huge operational …
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The pandemic has significantly increased HMRC’s workload and made the organisation more complex. HMRC has had to reallocate a significant number of its staff to work in COVID-19-related roles. At its peak, in May 2020, HMRC reallocated more than 9,000 (16%) of its staff. HMRC is facing a huge operational challenge. It is responsible for tackling a growing debt balance (while being sensitive to the hardships faced by taxpayers due to COVID-19), error and fraud in the COVID-19 employment support schemes, restoring its usual level of enforcement and compliance activities and pursuing its transformation plans. This is on top of dealing with the demands of EU Exit, on which more than 6,000 HMRC staff worked in 2019–20. HMRC also has to maintain and improve its customer services performance while facing increasing demand for its limited resources from other parts of its business. To achieve its objectives HMRC has published a 10-year strategy for modernising the tax administration system. However, short-term Spending Reviews, like the one in November 2020, may not provide HMRC with the opportunity to achieve a financial settlement commensurate with its long-term responsibilities, needs and ambitions. Recommendation: HMRC should review its priorities and work with HM Treasury to ensure it has sufficient capacity and resources to effectively manage its workload. HMRC should, following the November 2020 Spending Review, write to us, setting out the findings of its review and explaining what it might need to deprioritise if it has not secured sufficient additional resources.
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Government response AI summary
The government accepted the recommendation, noting £5.4 billion funding from the 2020 Spending Review, and committed to reviewing HMRC's 2021-22 priorities and publishing an Outcome Delivery Plan following the start of the financial year.
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HM Treasury
5
Recommendation
Thirty-Sixth Report - HMRC performance …
Accepted
HMRC has spent too much of its IT budget on patching up legacy systems rather than modernising them. The COVID-19 pandemic has shown the importance of an effective tax administration system. There is a strong case for investment in a modern IT system. Of the additional costs incurred by HMRC …
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HMRC has spent too much of its IT budget on patching up legacy systems rather than modernising them. The COVID-19 pandemic has shown the importance of an effective tax administration system. There is a strong case for investment in a modern IT system. Of the additional costs incurred by HMRC as a consequence of the pandemic, the largest element, as of 11 September 2020, was the cost of IT at £53.2 million (80%). HMRC says that it has made some progress in its ambitious digital transformation but is looking for opportunities to reduce the risks facing its IT systems so that they are kept up to date and safe from cyber-attacks and HMRC performance 2019–20 7 catastrophic losses. The Department accepts it should redress the balance between spending too much on legacy systems and not enough on investing for the future. Since we took evidence, HMRC secured £268 million in the November 2020 Spending Review to fix its outdated IT, to ensure its core systems are secure and support better administration. It remains to be seen whether this is sufficient to urgently address the long-standing issues the Department has identified. Recommendation: HMRC should write to us, by the end of March 2021, setting out what it is doing, and has planned, to refocus IT investment on modernisation for the future, while retaining resilience, so it can move on from the need to simply keep patching up legacy systems.
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Government response AI summary
The government accepted the recommendation, stating it has been addressing legacy IT since 2019 with £268 million funding and detailed a four-point plan (Rationalise/Streamline, Remediate, Migrate, Transform) to refocus investment on modernisation, with plans detailed in the Outcome Delivery Plan.
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HM Treasury
6
Recommendation
Thirty-Sixth Report - HMRC performance …
Accepted
HMRC too often struggles to provide reliable and timely financial estimates upon which good financial and operational planning depends. HMRC is responsible for dealing with vast sums of public money, both revenue and expenditure. Reliable and timely financial estimates are vital if it is to manage and allocate resources effectively, …
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HMRC too often struggles to provide reliable and timely financial estimates upon which good financial and operational planning depends. HMRC is responsible for dealing with vast sums of public money, both revenue and expenditure. Reliable and timely financial estimates are vital if it is to manage and allocate resources effectively, assess and report on its progress, judge how much it can afford to do, and consider where it needs to adjust its focus and interventions. Yet we have seen numerous examples where it has struggled: for example, its estimates of Corporation Tax revenues needed to be retrospectively amended by £6.6 billion in 2019–20; it exceeded its cash requirement control total by more than £700 million because of basic errors in financial forecasting; it is uncertain what its estimate of fraud and error from tax credits should be; and there has been a delay in producing a more rigorous estimate of the level of fraud and error associated with the Research & Development relief. On understanding the impact of COVID-19, HMRC is falling behind where it needs to be. For example, it is some way off being in a position to better assess the actual level of error and fraud from the employment support schemes, with planning estimates ranging from 5% to 10% on the Coronavirus Job Retention Scheme; and it has no estimates of error and fraud from the Eat Out To Help Out scheme, despite the scheme having ended in August. Recommendation: HMRC should, in its Treasury Minute response, set out: • the steps it is taking to ensure its financial estimates are sufficiently timely and rigorous; and • when it will have an estimate of the actual amount of error and fraud in the COVID-19 grant schemes it administers, rather than a planning estimate, and its plans for recovering those losses. 8 HMRC performance 2019–20 1 COVID-19 support schemes administered by HM Revenue & Customs
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Government response AI summary
The government accepted the recommendation, detailing steps to ensure financial estimates are timely and rigorous, including validation and monthly reporting. For COVID-19 grant schemes, it provided timelines for actual error/fraud estimates and outlined a post-payment compliance approach for recovering losses.
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HM Treasury
9
Conclusion
Thirty-Sixth Report - HMRC performance …
Accepted
We asked HMRC whether it had carried out any evaluation of the Eat Out to Help Out scheme to inform its possible reintroduction.23 The scheme allowed customers, at participating establishments, to get a 50% discount on food or non-alcoholic drinks to eat or drink in (up to a maximum of …
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We asked HMRC whether it had carried out any evaluation of the Eat Out to Help Out scheme to inform its possible reintroduction.23 The scheme allowed customers, at participating establishments, to get a 50% discount on food or non-alcoholic drinks to eat or drink in (up to a maximum of £10 discount per diner) every Monday, Tuesday and Wednesday between 3 and 31 August 2020.24 HMRC told us that HM Treasury will announce in due course its plans for evaluating the Eat Out to Help Out and other COVID-19 support schemes. The Department explained the purpose of the Eat Out to Help Out scheme was to increase demand in the restaurant sector. HMRC told us that, while there is some evidence to show this had been achieved, there will need to be a fuller evaluation of how well the scheme worked, the error and fraud risk and whether the scheme had achieved value for money.25 19 Qq 5–6, 8 20 Letter dated 3 December from HMRC Permanent Secretary to Chair 21 Qq 9, 11 22 C&AG’s Report, para 2.2 & Figure 10 23 Qq 29, 35–36 24 Q 31; C&AG’s Report, Figure 10 25 Qq 29, 31–33 HMRC performance 2019–20 11
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Government response AI summary
The government agreed to the committee's observation and committed to writing to the Committee in March 2021 to detail their approach to evaluating the Eat Out to Help Out scheme and the lessons learned.
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HM Treasury
12
Conclusion
Thirty-Sixth Report - HMRC performance …
Accepted
We questioned the Department on its policy of entering into non-breakable 25-year lease agreements, which we had criticised in the past. We wanted to know whether the impact of the pandemic on the commercial property market, such as falling rents as a result of reduced demand for space, had made …
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We questioned the Department on its policy of entering into non-breakable 25-year lease agreements, which we had criticised in the past. We wanted to know whether the impact of the pandemic on the commercial property market, such as falling rents as a result of reduced demand for space, had made its policy even more unwise. We stressed that it was strange for it not to be looking at taking shorter leases.34 In April 2017, long before COVID-19, we raised our concerns about HMRC locking government into holding larger properties for longer than needed. We raised similar concerns again in January and April 2018.35
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Government response AI summary
The government states it is satisfied its current estate strategy offers value for money, citing independent advice and flexible lease terms that allow for subletting. It reiterates its expectation to remain an office-based organisation but will review future space requirements and work with the Government …
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HM Treasury
15
Recommendation
Thirty-Sixth Report - HMRC performance …
Accepted
HMRC told us it still believed the most cost-effective way of getting good deals in the property market is to enter into long-term leases. The Department explained to us that its regional centres are in “attractive locations” and if it transpired that it needed less space because of the COVID-19 …
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HMRC told us it still believed the most cost-effective way of getting good deals in the property market is to enter into long-term leases. The Department explained to us that its regional centres are in “attractive locations” and if it transpired that it needed less space because of the COVID-19 pandemic, it believed that space would be “readily lettable” to other government departments or the private sector.40 HMRC assured us subsequently that, where possible and in keeping with commercial reality, it has negotiated flexibility, such as subletting and sharing of occupation arrangements, into its leases. The Department told us that all of its transactions had been scrutinised and endorsed by qualified Chartered Surveyors, external to government, to demonstrate that, on the terms negotiated, HMRC had achieved value for money over the full term of the leases.41 We asked the Department to agree to take the impact of the pandemic on the commercial property market into account before taking on any more long-term leases and HMRC confirmed that it would.42
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Government response AI summary
The government accepts the recommendation to take the impact of the pandemic on the commercial property market into account before taking on any more long-term leases, further stating its estates strategy continues to offer value for money and it will review space requirements.
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HM Treasury
20
Conclusion
Thirty-Sixth Report - HMRC performance …
Accepted
We asked HMRC about it plans to tackle fraud and error in the COVID-19 support schemes while ensuring the timely payments of support to those in need. HMRC explained that it has to strike a balance between helping as many people as it could, as fast as possible, while also …
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We asked HMRC about it plans to tackle fraud and error in the COVID-19 support schemes while ensuring the timely payments of support to those in need. HMRC explained that it has to strike a balance between helping as many people as it could, as fast as possible, while also managing the risks of fraud and error. HMRC mitigated some of the risks at the design stage of the schemes by making any support contingent on the data it already held about employers, employees and the self-employed. It was also able to identify very high-risk claims in the period of approximately 72 hours between a claim being made and payments being processed. HMRC told us it had stopped about £63 million-worth of payments during that period. However, it will have to manage the remainder of any 47 Qq 59–60 48 Q 58; C&AG’s Report, para 13 49 Qq 102–103 50 Qq 20–21; C&AG’s Report, para 2.16 51 Qq 21, 57 52 Qq 21–23 53 Q 26 HMRC performance 2019–20 15 fraud and error after payments have been made, over a period of time.54 We asked the Department about what it considered was an acceptable level of fraud in the schemes it administers. HMRC told us that no fraud is tolerable. However, in the case of the CJRS it had made a planning assumption that the level of fraud and error in the scheme could be between 5% to 10%. The lower end of the estimated level of fraud and error would be in line with the estimated levels of fraud and error in tax credits and the tax system (HMRC’s latest available estimate of the tax gap in 2018–19 was 4.7%). The upper level of HMRC’s estimate of fraud and error in CJRS, however, was significantly higher than comparable estimates and it would be “very unwelcome” to HMRC.55 HMRC explained to us that it faces a “multi-dimensional” challenge, in terms of administering COVID-19 support schemes, dealing with the end of the UK’s EU Exit transition period and modernising the tax system whilst still maintaining business as usual performance.56 To help achieve its objectives HMRC has
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Government response AI summary
The government acknowledges the committee's conclusion on plans to tackle fraud and error in COVID-19 support schemes, confirming that a complete assessment of total fraud and error will be available by the end of 2021 and detailing its post-payment compliance approach for recovering funds from …
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HM Treasury
21
Conclusion
Thirty-Sixth Report - HMRC performance …
Accepted
As HMRC moves towards a fully digital tax system, the capability of its IT systems, including in terms of cyber security, will become increasingly important to HMRC’s ability to operate effectively. HMRC has recognised that, due to the need in the past to forgo operational maintenance and upgrades to its …
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As HMRC moves towards a fully digital tax system, the capability of its IT systems, including in terms of cyber security, will become increasingly important to HMRC’s ability to operate effectively. HMRC has recognised that, due to the need in the past to forgo operational maintenance and upgrades to its systems to secure cost savings, its IT systems now constitute a significant risk to the Department.58 We asked HMRC about the impact of the relatively poor state of its IT infrastructure on the cost-effectiveness of its administration of the tax system. HMRC told us that it is important that it has sufficient investment to modernise its IT estate as well as continue to maintain its legacy systems to ensure they are kept up to date and are safe from cyber-attacks and catastrophic losses. In the case of its legacy systems, ‘patching’ is a never-ending process.59
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Government response AI summary
The government agrees with the committee's observations and states it has been addressing legacy technical debt since 2019, receiving £268 million in 2020 to improve its IT estate. This includes rationalising services, remediating high-priority debt, migrating to the cloud, and transforming systems to reduce operating …
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HM Treasury
22
Conclusion
Thirty-Sixth Report - HMRC performance …
Accepted
HMRC told us that it spends too much of its IT budget on maintaining its legacy estate and not enough on investment for the future and modernisation. The Department will seek funding opportunities, such as Spending Reviews, to modernise its systems. HMRC’s experience of implementing the COVID-19 schemes showed the …
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HMRC told us that it spends too much of its IT budget on maintaining its legacy estate and not enough on investment for the future and modernisation. The Department will seek funding opportunities, such as Spending Reviews, to modernise its systems. HMRC’s experience of implementing the COVID-19 schemes showed the importance of having up-to-date technology and data in overcoming any constraints in supporting those in need.60 Of the extra costs incurred by HMRC on COVID-19-related work, as of 11 September 2020, the largest element was the cost of IT at £53.2 million (80%).61 HMRC highlighted self-employed taxes as an area where data and technology infrastructures had not kept pace with developments since they were put in place in the mid-1990s.62
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Government response AI summary
The government agrees with the committee's observations and states it has been addressing its legacy IT debt since 2019, securing £268 million in 2020 to modernize its IT estate. This involves rationalizing, remediating, migrating systems to the cloud, and transforming its infrastructure to enhance agility, …
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HM Treasury
23
Conclusion
Thirty-Sixth Report - HMRC performance …
Accepted
We asked about the success of the Department’s transformation plans following the ambition it set itself in 2015 to “become one of the most digitally advanced tax administrations in the world”. HMRC considers that, although it is not the most digitally advanced tax administration in the world, it has made …
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We asked about the success of the Department’s transformation plans following the ambition it set itself in 2015 to “become one of the most digitally advanced tax administrations in the world”. HMRC considers that, although it is not the most digitally advanced tax administration in the world, it has made significant digital advances since
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Government response AI summary
The government agrees with the committee's observations, stating it has been implementing its IT modernization plan since 2019 with £268 million funding from the 2020 Spending Review. This plan involves rationalizing services, remediating technical debt, migrating to the cloud, and transforming systems to enhance agility, …
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HM Treasury
24
Conclusion
Thirty-Sixth Report - HMRC performance …
Accepted
HMRC handles large sums of money, both collecting and paying out.68 It relies on financial estimates in various different contexts to help achieve its objectives. Yet we have recently seen several examples where there have been mistakes in those estimates. We asked the Department about the circumstances of its breach …
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HMRC handles large sums of money, both collecting and paying out.68 It relies on financial estimates in various different contexts to help achieve its objectives. Yet we have recently seen several examples where there have been mistakes in those estimates. We asked the Department about the circumstances of its breach by £726 million, in 2019–20, of its net cash requirement total, an important parliamentary control over public spending. The Comptroller and Auditor General had to qualify his opinion on HMRC’s accounts because of this breach. HMRC recognised the seriousness of its breach. It explained that it had made an error in calculating its cash requirement which meant that it used more cash than it had predicted. The Department noted that it had not exceeded its budget and that in its view “there was no real-world impact from this error”. As a result of the breach, HMRC commissioned a review by its internal audit function to understand what had gone wrong and identify improvements to its processes for estimating its cash requirements.69 In a separate example, HMRC, as explained in its own Annual Report and Accounts, also had to correct its estimates of Corporation Tax revenues by some £6.6 billion in 2019–20, as a result of errors it made in its estimates in previous years.70
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Government response AI summary
The government confirmed the implementation of additional validation exercises and strengthened sign-off processes to prevent future Net Cash Requirement breaches, and committed to improved controls and monthly forecasting to the Treasury for income control.
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HM Treasury
26
Conclusion
Thirty-Sixth Report - HMRC performance …
Accepted
Regarding the COVID-19 support schemes, we asked HMRC whether it had estimated the level of fraud and error in the Eat Out to Help Out scheme considering the scheme had ended at the end of August. HMRC confirmed to us that it did not yet have an estimate of the …
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Regarding the COVID-19 support schemes, we asked HMRC whether it had estimated the level of fraud and error in the Eat Out to Help Out scheme considering the scheme had ended at the end of August. HMRC confirmed to us that it did not yet have an estimate of the level of fraud and error.75 It explained to us that, while it had made three arrests so far for fraud, its compliance work had been affected by the fact that restaurants had to go back into a lockdown. It has identified high-risk cases, for investigation, where the amounts of the received claims have not been in proportion to the information the Department holds on the businesses.76 In the case of the CJRS measure, HMRC has made a planning assumption for its compliance work that there could be 5% to 10% of fraud and error. It has yet to determine the actual level of fraud and error.77 73 Qq 97, 99; HM Revenue & Customs Annual Report and Accounts 2019–20, The Resource Accounts: Certificate and Report of the Comptroller and Auditor General to the House of Commons, HC 891, 5 November 2020 74 Qq 92–93 75 Qq 31, 33 76 Qq 28, 34 77 Q 43; C&AG’s Report, Implementing employment support schemes in response to the COVID-19 pandemic, Session 2019–2021, HC 862, 23 October 2020, paragraph 19 HMRC performance 2019–20 19
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Government response AI summary
The government agrees with the committee's observations and explains it will have complete fraud and error assessments for CJRS by the end of 2021 and for SEISS after 2020-21 Self-Assessment returns are filed. It outlines its existing post-payment compliance approach, which identifies high-risk cases for …
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HM Treasury