Source · Select Committees · Public Accounts Committee
Sixteenth Report - HMRC performance in 2022–23
Public Accounts Committee
HC 76
Published 28 February 2024
Conclusions (20)
2
Conclusion
Accepted
While we recognise the progress HMRC is making to tackle tax debt, we are concerned that it should have sufficient checks to protect taxpayers from being pursued too forcefully. HMRC says it has now worked through the debts created during the pandemic but still new tax debt is being created …
Government Response Summary
The government agrees and will update GOV.UK guidance to clarify how taxpayers can raise complaints about debt collection agencies. HMRC also commits to writing separately to the Committee with a summary of issues raised by these complaints.
3
Conclusion
Accepted
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 …
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.
4
Conclusion
Accepted
We are concerned that HMRC’s approach to serious abuse is not deterring criminal activity sufficiently, while at the same time its approach to tackling IR35 is deterring legitimate economic activity. HMRC says that it is increasingly focusing its criminal prosecutions on the most serious cases, with the number of criminal …
Government Response Summary
The government agrees. HMRC added an optional question to its Check Employment Status for Tax (CEST) tool on 27 March 2024, asking customers for their sector, to better understand usage and identify specific sectoral challenges related to IR35 reforms.
5
Conclusion
Accepted
HMRC has been too slow to identify the scale of error and fraud in research and development tax reliefs and its approach to tackling offenders does not sufficiently target those committing serious fraud over those making honest mistakes. We have been highlighting the risk of error and fraud on these …
Government Response Summary
The government agrees. HMRC states it can look back up to 20 years for deliberate non-compliance in R&D tax reliefs. Additionally, an R&D Disclosure Facility will go live on GOV.UK in spring 2024 to allow businesses to correct overclaimed or erroneous returns.
6
Conclusion
Accepted
HMRC’s reliance on the tax gap measure is not providing a sufficiently stretching target for its compliance performance. The tax gap is subject to a variety of factors, not just HMRC’s compliance performance, and its relationship to compliance yield is not straightforward. In 2021–22, the latest year available, HMRC estimated …
Government Response Summary
The government agrees, stating the recommendation is implemented as HMRC's compliance yield target is already set using an agreed methodology with HM Treasury and OBR, ensuring it's ambitious, aligns with maintaining a stable tax gap, and increases with tax receipts and inflation.
1
Conclusion
Accepted
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Revenue & Customs (HMRC) on its performance in 2022–23.1 HMRC published its annual report and accounts for 2022–23 in July 2023.
Government Response Summary
The government states it agrees HMRC should be sufficiently resourced and highlights a £0.9 billion cash increase for HMRC from the 2021 Spending Review, including over £130 million for enhancing digital services.
7
Conclusion
Accepted
HMRC has recently increased its use of external agencies.18 In 2022–23 it spent £34.0 million on agencies to recover tax debt, up from £20.6 million in 2021–22.19 A new contract 9 Q 31 10 Q 83 11 Qq 84–85 12 Q 83 13 HMRCSR0007 Institute of Chartered Accountants in England …
Government Response Summary
The government agrees with the observation and will update GOV.UK guidance by September 2024 to provide clearer information on how taxpayers can complain to HMRC about Debt Collection Agencies. HMRC will also provide the Committee with a separate summary of complaint issues.
8
Conclusion
Accepted
We have received written evidence that HMRC repeatedly pursues small debts over a number of years.24 We asked HMRC whether this was disproportionate to the size of the debt. HMRC told us it takes a risk-based approach to debt management and will pursue even small debts if it is cost-effective …
Government Response Summary
The government agrees and will update GOV.UK by September 2024 to provide clearer guidance on how taxpayers can raise complaints to HMRC regarding the handling of their cases by Debt Collection Agencies.
9
Conclusion
Accepted
We asked HMRC about a taxpayer who has received more than 10,000 letters from HMRC in relation to companies registered incorrectly at his address. HMRC told us it has investigated and found a foreign agent acting on behalf of overseas companies had incorrectly registered those companies for VAT at the …
Government Response Summary
The government agrees with the committee's observation and states the recommendation is implemented. HMRC commits to immediate action on misdirected letters and preventing fraudulent registrations, and is working closely with Companies House to implement the Economic Crime and Corporate Transparency Act 2023, which will strengthen controls for company registration and improve data accuracy.
10
Conclusion
Accepted
We have raised this case with HMRC on several occasions in the past, but the taxpayer affected has continued to receive letters, including demands for payments.32 HMRC told us that addresses on its VAT system feed through into other systems, including for customs purposes. But the corrections it has made …
Government Response Summary
The government agrees and states the recommendation is implemented. HMRC will take immediate action to correct misdirected letters, prevent registration with fraudulent addresses, and prevent automatic correspondence to incorrect addresses. HMRC is also working with Companies House to strengthen registration controls and improve data accuracy under the Economic Crime and Corporate Transparency Act 2023.
11
Conclusion
Accepted
HMRC highlighted a more widespread problem with bogus registrations, where companies hijack taxpayers’ identities in an attempt to defraud HMRC.35 We have received written evidence on the time it takes for HMRC to resolve these cases and the distress this causes to those concerned.36 HMRC told us that Companies House …
Government Response Summary
The government agrees with the committee's observation and states the recommendation is implemented. HMRC commits to immediate action on misdirected letters and preventing fraudulent registrations, and is working closely with Companies House to implement the Economic Crime and Corporate Transparency Act 2023, which will strengthen controls for company registration and improve data accuracy.
12
Conclusion
Accepted
We asked HMRC about how it is addressing issues created by the implementation of reforms to the IR35 rules on off-payroll working. HMRC said that the reforms to IR35 shift the burden of determining employment status from workers to employers. HMRC told us that it provides tools and guidance to …
Government Response Summary
The government agrees and states the recommendation is implemented. HMRC remains committed to understanding the impacts of off-payroll working reforms, having published relevant research and analysis which it will update. From March 2024, HMRC has also added an optional sector question to its CEST tool to gather further customer insight.
13
Conclusion
Accepted
We asked whether HMRC’s pursuit of some IR35 cases through the courts was fair and proportionate. HMRC said it will always try to resolve disputes by agreement but that some litigation is inevitable. HMRC said it does not underestimate the stress involved when a taxpayer is facing potential litigation. It …
Government Response Summary
The government agrees and states the recommendation is implemented, explaining that HMRC already makes litigation decisions in line with its published Litigation and Settlement Strategy. HMRC aims to resolve disputes by agreement and only persists with litigation where it expects success and a strong return for the Exchequer.
14
Conclusion
Accepted
HMRC’s approach to civil litigation contrasts with its approach to criminal prosecutions. HMRC said it is increasingly selective about when it uses its criminal investigation powers and when it seeks prosecution.48 HMRC’s criminal investigations resulted in 240 prosecutions in 2022–23. This is a significant reduction on the 691 prosecutions achieved …
Government Response Summary
The government agrees and will provide further explanation by Summer 2024. HMRC is already working on a previous recommendation to review the deterrent effect of criminal investigations and prosecutions, collecting data for analysis to provide a refreshed view of the impact of tax crime prosecutions.
15
Conclusion
Accepted
HMRC administers two research and development relief schemes to support companies that work on innovative projects in science and technology, one for large companies and one for small- and medium-sized enterprises (SMEs). In 2022–23, businesses claimed research and development tax reliefs worth £10.2 billion.51 HMRC has previously told the Committee …
Government Response Summary
The government agrees with the committee's observation and is implementing several measures by Summer 2024, including new electronic claim requirements, increased R&D compliance staff to over 500, establishment of an Anti-Abuse Unit, and the launch of an R&D Disclosure Facility in Spring 2024 to tackle non-compliance.
16
Conclusion
Accepted
HMRC has introduced a number of changes in response to the high levels of abuse. Since August 2023 HMRC requires companies to make all claims digitally, with more detail and endorsed by a named senior officer.57 It told us it is no longer paying claims directly to tax agents, and …
Government Response Summary
The government agrees with the committee's observation and has a target implementation date of Summer 2024 for various measures to combat R&D tax relief abuse, including new electronic claim requirements, increased compliance staffing, an Anti-Abuse Unit, and an R&D Disclosure Facility launching in Spring 2024.
17
Conclusion
Accepted
Organisations representing accountants and tax professionals wrote to us with concerns about the impact of HMRC’s volume compliance approach on companies.60 50 Qq 33, 34 51 C&AG’s Report, paras 2.2, 2.4 52 Committee of Public Accounts, HMRC performance in 2021–22, 33rd Report of Session 2022–23, HC 686, 11 January 2023, …
Government Response Summary
The government agrees with the committee's observation and intends to implement measures by Summer 2024, including new electronic claim requirements to better risk assess R&D claims, increased compliance staff to over 500, a new Anti-Abuse Unit, and an R&D Disclosure Facility launching in Spring 2024.
18
Conclusion
Accepted
The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC and what was actually paid. HMRC estimates the tax gap in 2021–22, the latest year available, has remained at 4.8% of all liabilities. This is despite the tax revenue HMRC generated …
Government Response Summary
The government agrees with the conclusion, stating the recommendation has been implemented through an agreed methodology with HMRC, HM Treasury, and the OBR, which sets annual compliance yield targets to maintain a stable tax gap and secure additional revenues.
19
Conclusion
Accepted
HMRC said that it estimates the tax gap in accordance with best practice, and pointed to a review by the Office for Statistics Regulation in 2019 as evidence of rigorous external scrutiny. It said it was always keen to improve its tax gap estimates if it can.65 HMRC said that …
Government Response Summary
The government agrees, stating the recommendation is implemented via an existing methodology, agreed with HM Treasury and OBR, which sets annual compliance yield targets to align with maintaining a stable tax gap and secure revenues.
20
Conclusion
Accepted
HMRC agrees a compliance yield target each year with HM Treasury and ministers, set at a level to maintain the tax gap at its current level.68 HMRC told us that this target is derived from a model endorsed by the Office for Budget Responsibility. Given how this model is set …
Government Response Summary
The government agrees, stating the recommendation has been implemented through an agreed methodology with HMRC, HM Treasury, and the OBR, which sets annual compliance yield targets to align with maintaining a stable tax gap and securing additional revenues.