Source · Select Committees · Public Accounts Committee
Thirty-Third Report - HMRC performance in 2021–22
Public Accounts Committee
HC 686
Published 11 January 2023
Recommendations
2
Rejected
Resourcing HMRC’s compliance work to maintain rather than reduce the tax gap means the government...
Recommendation
Resourcing HMRC’s compliance work to maintain rather than reduce the tax gap means the government is missing out on billions in lost revenue. HMRC estimates that the tax gap—the difference between the amount of tax that should, in theory be …
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Government Response Summary
The government disagrees with the recommendation to set out the level of investment needed to reduce the tax gap and to report an uncertainty range for the tax gap estimate, stating that funding levels are a decision for Treasury ministers and that they have a track record of investing in compliance work.
HM Treasury
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4
Accepted
We are concerned that HMRC may be lagging behind other established tax authorities in preventing...
Recommendation
We are concerned that HMRC may be lagging behind other established tax authorities in preventing fraudulent VAT registrations. HMRC is constantly changing its processes to prevent criminals from exploiting the tax system. VAT is particularly susceptible to fraud and criminality …
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Government Response Summary
HMRC will engage further with international partners, including German tax authorities via its FCLO in Berlin, to understand how other tax authorities tackle VAT fraud through controls on registration, with target implementation by end March 2024.
HM Treasury
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5
Accepted
Taxpayers and their agents are still not receiving an acceptable level of customer service.
Recommendation
Taxpayers and their agents are still not receiving an acceptable level of customer service. In the last five years, HMRC has reduced its customer service staff numbers from 25,500 to 19,500. During the pandemic, HMRC’s performance in replying to post …
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Government Response Summary
HMRC will write to the Committee in April 2023 setting out its plan to improve customer service. The metrics used to monitor customer service performance will be published externally in HMRC’s 2023-24 Outcome Delivery Plan, and quarterly/monthly performance updates against key metrics will continue to be updated.
HM Treasury
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6
Accepted
HMRC has further to go until it can differentiate between taxpayers who are genuinely struggling,...
Recommendation
HMRC has further to go until it can differentiate between taxpayers who are genuinely struggling, and those who can afford to meet their liabilities but are choosing not to. Total tax debt in August 2022 was £46 billion, less than …
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Government Response Summary
HMRC will invest £47.2 million to improve its capability to manage tax debts and better distinguish between taxpayers who can afford to settle their tax debts and those who need support, and will apply external data to its internal modelling by the end of 2023/24.
HM Treasury
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7
Not Addressed
Research and development tax reliefs are costly, prone to abuse and provide questionable benefit to...
Recommendation
Research and development tax reliefs are costly, prone to abuse and provide questionable benefit to the UK economy. The government has a target of 2.4% of GDP to be invested in research and development. In 2021–22, HMRC spent £9.5 billion …
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Government Response Summary
The response addresses different recommendations (1 and 2 related to the UK Infrastructure Bank) and not the recommendation related to research and development tax reliefs.
HM Treasury
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8
Accepted
HMRC’s 2020–21 estimates of the tax gap are more uncertain than usual due to the...
Recommendation
HMRC’s 2020–21 estimates of the tax gap are more uncertain than usual due to the impact of COVID-19 on the data it uses to inform its estimates. For example, HMRC said it has had to make some assumptions about the …
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Government Response Summary
HMRC will explore the feasibility of applying advanced statistical techniques to produce an overall uncertainty range for the headline tax gap figure by December 2023, and will publish a range if analytically robust.
HM Treasury
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15
Accepted
HMRC’s post and call handling performance fell significantly during the pandemic.
Recommendation
HMRC’s post and call handling performance fell significantly during the pandemic. For example, in 2021–22 HMRC responded to 39.5% of post within 15 days, compared to 70.3% in 2019–20. The average speed of answering calls to HMRC helplines was 12:22 …
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Government Response Summary
HMRC will write to the Committee in April 2023 setting out its plan to improve customer service including metrics to monitor performance, the level of service taxpayers and agents can expect over the next three years, how it will support customers who cannot engage digitally, and contingency arrangements.
HM Treasury
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17
Accepted
HMRC’s expects to improve customer service by continuing digitalise the tax system, for instance by...
Recommendation
HMRC’s expects to improve customer service by continuing digitalise the tax system, for instance by developing its digital assistant and single customer account. In this way HMRC hopes to reduce the demand for phone and post by servicing more people …
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Government Response Summary
HMRC will transform digital services for individuals through incremental releases over the next two years, prioritizing delivery with the largest customer benefit and efficiency impacts; already released features include online proof of entitlement to Child Benefit, and future features will support online changes to details in a single place.
HM Treasury
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21
Rejected
The government has a target of 2.4% of GDP to be spent on research and...
Recommendation
The government has a target of 2.4% of GDP to be spent on research and development.32 To encourage this investment, HMRC administers tax reliefs to companies via two schemes – one for large companies and one for small and medium-sized …
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Government Response Summary
The government disagrees with the recommendation, stating that HMRC has already published reports on the additional R&D expenditure stimulated by tax relief schemes and that further analysis will be carried out in the future but not within 12 months, although an update will be provided within that period.
HM Treasury
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Conclusions (14)
3
Conclusion
Accepted
HMRC’s plan to only recover a quarter of losses due to fraud and error on its COVID-support schemes does not go far enough. HMRC estimates that total error and fraud across the lifetime of the COVID-support schemes is £4.5 billion, representing 4.6% of the £96.9 billion total support provided. This …
Government Response Summary
HMRC maintains performance indicators for compliance performance and will continue to address COVID-19 compliance risks, transitioning the Taxpayer Protection Taskforce into 'business as usual' compliance activity from April 2023. This will allow HMRC to consider the risk of overclaims of COVID-19 grants alongside other tax compliance risks when prioritising cases for a compliance check.
1
Conclusion
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Revenue & Customs (HMRC) on its performance in 2021–22.1 HMRC published its annual report and accounts for 2021–22 on 18 July 2022, shortly before Parliament’s summer recess. It had published its annual report …
9
Conclusion
Rejected
With the resources it was given in the 2021 Spending Review, HMRC’s aim is to maintain the tax gap and prevent it from growing. For every £1 that it spends on compliance activity, it said it recovers £18 in additional tax revenues. HMRC sometimes gets additional resources from HM Treasury …
Government Response Summary
The government disagrees, stating that HMRC's funding levels are a decision for Treasury ministers based on advice from HMRC and HM Treasury officials, and it is right that this advice is considered in private.
10
Conclusion
HMRC estimates that total fraud and error across the lifetime of the COVID-support schemes was £4.5 billion, representing 4.6% of the total support provided. This is lower than the estimate HMRC included in its 2020–21 accounts. HMRC has drawn on new data to improve its estimate, from a random enquiry …
11
Conclusion
HMRC has been given £100 million to fund a temporary taskforce to investigate fraud and error on the schemes and has opened about 40,000 investigations so far. HMRC forecasts that by the time the taskforce winds down, it will have recovered around £1.1 billion, around a quarter of the fraud …
12
Conclusion
Acknowledged
We raised the point that there was a moral duty and fairness issue to pursue fraud with, for example, some companies getting an unfair competitive advantage through their abuse of the schemes. HMRC said that it looks into every single allegation of fraud, drawing together other supporting data such as …
Government Response Summary
HMRC will continue to address and recover overclaimed grants as part of its business-as-usual compliance activity, taking action against those who have abused the COVID-19 financial support schemes where it is cost effective to do so.
13
Conclusion
Acknowledged
We asked HMRC about a case where a criminal used a legitimate company’s details, apparently successfully, to apply for a VAT registration number and make fraudulent VAT 13 Qq 14, 33, 43–45 14 Qq 80–83, 92–95 15 Q 84 16 Qq 89–91, 113 12 HMRC performance in 2021–22 repayment claims. …
Government Response Summary
HMRC will engage further with international partners, including German tax authorities via its FCLO in Berlin, to understand how other tax authorities tackle VAT fraud through controls on registration, with target implementation by end March 2024.
14
Conclusion
Acknowledged
HMRC told us that VAT is a particular target for organised crime as it can involve HMRC repaying large amounts to taxpayers. HMRC described it as an ‘arms race’, with HMRC constantly changing its processes and risk assessment to prevent criminals from abusing the tax registration process, and criminals constantly …
Government Response Summary
HMRC will engage further with international partners, including German tax authorities via its FCLO in Berlin, to understand how other tax authorities tackle VAT fraud through controls on registration, with target implementation by end March 2024.
16
Conclusion
HMRC said that it limits the number of callers that can join the call queue, which can have an impact on its call waiting time measure. Anyone not able to join the call queue is played a “busy message” and is forced to end the call. HMRC told us that …
18
Conclusion
The total tax debt owed to HMRC in August 2022 was £46 billion. This is less than at the height of the pandemic in March 2021 but significantly higher than before the pandemic. HMRC told us that while the size of the debt fluctuates throughout the year, the trend continues …
19
Conclusion
Accepted
HMRC said it is dealing with a larger number of smaller debts than it is has dealt with before. It told us that it had previously took a one-size-fits-all approach to managing debts, but is now trying to vary its approach depending on whether a debtor is in genuine financial …
Government Response Summary
HMRC recognizes the importance of differentiating between taxpayers who are struggling to pay and those who choose not to do so, and states its priority is to support those in short term financial difficulty. It is enhancing the online Self-Serve Time To Pay service, and will apply external data to its internal modelling by the end of 2023/24 to provide greater insight into the debtor population.
20
Conclusion
Acknowledged
HMRC said it is trying to improve the data it uses to understand the behaviour of its debtors. It is experimenting with data from credit reference agencies.29 It is also developing a comprehensive single customer account, using funding it received in the 2021 Spending Review.30 HMRC’s digital services are currently …
Government Response Summary
HMRC recognizes the importance of differentiating between taxpayers who are struggling to pay and those who can afford to meet their liabilities and is expanding debt management services and testing external data sources. They will apply the external data to internal modelling by the end of 2023/24 to better tailor treatment based on individual circumstances.
22
Conclusion
Rejected
In 2021–22, HMRC granted research and development tax reliefs worth £9.5 billion.34 HMRC said the relief is an attractive target for abuse, whether by companies that have not carried out any research and development or by advisors encouraging companies to push the boundaries of what expenditure is eligible to be …
Government Response Summary
The government disagrees with the recommendation, stating that HMRC has already published reports on the additional R&D expenditure stimulated by tax relief schemes and that further analysis will be carried out in the future but not within 12 months, although an update will be provided within that period.
23
Conclusion
Accepted
Fraud and error is particularly high on the scheme for small and medium-sized enterprises, estimated at 7.3% in 2021–22. HMRC said it gets about 76,000 claims on this scheme every year, providing a lot of activity for HMRC to police.40 It said it is introducing new measures from April 2023 …
Government Response Summary
HMRC will continue to address and recover overclaimed grants as part of its business-as-usual compliance activity, taking action against those who have abused the COVID-19 financial support schemes where it is cost effective to do so.