Source · Select Committees · Public Accounts Committee
Recommendation 3
3
Accepted
Take serious action against companies registering with wrong addresses and report on protective plans.
Conclusion
HMRC is not taking seriously enough the distress caused to innocent citizens when companies use the wrong address to register their business. One particular case involved a taxpayer receiving more than 10,000 letters due to an agent registering companies for VAT at the taxpayer’s address rather than a serviced office that shared the same postcode. Despite this Committee repeatedly raising this case, HMRC was unable to prevent further letters being sent out to the wrong address, including 6 HMRC performance in 2022–23 demands for payment, and even now HMRC cannot guarantee further letters will not be sent. We are concerned that there will be other cases not brought to our attention that remain unresolved. These cases create particular distress for innocent citizens receiving these demands for payments, and an extraordinary amount of time and effort to resolve with HMRC. While HMRC considers this particular case to be a “bizarre accident”, it accepts there is a more widespread issue with bogus registrations from companies seeking to defraud HMRC. It expects new powers for Companies House will help the entire system tackle this issue. Recommendation 3: We expect HMRC to take serious action against companies registering with the wrong addresses. HMRC should report back to the Committee on: • the scale of the issue and the level of tax at risk; and • its plans for ensuring innocent people do not suffer from bogus registrations and HMRC’s demands for tax from the wrong people.
Government Response Summary
The government agrees and states HMRC already takes immediate action to correct misdirected letters, acts to de-register/prevent registration for fraud, and prevents correspondence to incorrect addresses. HMRC may also notify true owners of addresses.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Recommendation implemented HMRC recognises the distress that misdirected letters can generate and will take immediate action to correct this when identified. The department would only use its enforcement powers against the taxpaying entity and would not pursue the true owner of the address in the case of a bogus registration. In addition, where the use of someone else’s address to register for VAT is identified, the department will act to de-register/prevent registration if there is a suspicion of fraud. For Corporation Tax, registration automatically flows through from Companies House registration data. If HMRC is aware that an incorrect address has been used, it will take steps to prevent the automatic production of correspondence to that address. The department may also notify the true owner of the address where it is possible to do so. In 2023, there were circa 67,000 new companies registered with Companies House each month. Most companies initially register with Companies House, where the Registrar will verify the application. Most Corporation Tax records are automatically set up using a data feed from that process. Companies which also register for VAT do so directly with the department and are subjected to further identity validation/eligibility checks. An average of 18,000 companies a month applied for VAT registration in 2023. HMRC is working closely with Companies House to support implementation of the Economic Crime and Corporate Transparency Act 2023. This will consider ways of strengthening controls for registration of a new company and improving the processes through which company accounts are filed, as well as opportunities for greater intelligence sharing and reviewing accuracy of current data held on the Companies House Register. million. 4.13 Since 1 January 2020, HMRC has won over 70 per cent of employment status and IR35 cases. This includes two decisions handed down in HMRC’s favour. 4d. PAC recommendation: HMRC should: • assess the impact of HMRC’s approach to administering IR35 reforms on the use of contractors in different sectors. 4.14 The government agrees with the Committee’s recommendation. 4.15 HMRC remains committed to understanding the impacts of the off-payroll working reforms. 4.16 In December 2022, HMRC published research on the short-term effects of the 2021 reform, including insight on the way off-payroll workers are engaged following the reform. This showed that around half of organisations engaging off-payroll workers found the reforms easy to administer. Research also found most organisations used at least one area of HMRC support to understand and apply the rules, with the overwhelming majority finding this support useful. 4.17 This followed similar research published into the 2017 reform. 4.18 Furthermore, HMRC published its own analysis into the impacts of the 2021 reform. The analysis showed the sectors with the highest proportion of workers who were previously working through personal service companies and moved to another organisation’s payroll, were from professional, scientific and technical; information and communication; transport and storage; finance and insurance; and administrative and support services. HMRC will update this analysis when new data becomes available. 4.19 HMRC also gathers customer insight through various sources to understand how customers in different sectors are responding to the reform and whether a sector may have been particularly affected or may face particular challenges in applying the rules. 4.20 Feeding into this, on 27 March 2024, HMRC included an optional question in its Check Employment Status for Tax (CEST) tool asking from which sector the customer operates. This insight will help HMRC better understand customer usage of CEST across different sectors and identify any specific sectoral challenges.