Source · Select Committees · Public Accounts Committee
Thirty-Seventh Report - HMRC Performance in 2020–21
Public Accounts Committee
HC 641
Published 11 February 2022
Conclusions (35)
2
Conclusion
HMRC does not understand the reasons for the growth in the cost of research and development tax reliefs including how much is due to abuse. The cost of research and development (R&D) tax reliefs has grown by 240% over the last four years, with claims exceeding forecasts. Over this period …
3
Conclusion
HMRC does not have a convincing plan for restoring compliance activity back to pre-pandemic levels. In response to the pandemic, HMRC suspended some of its compliance work in 2020–21 where taxpayers could not cope with inquiries, and because it needed to redeploy staff. The number of compliance investigations which HMRC …
4
Conclusion
Resource constraints are limiting HMRC’s ability to get the optimum level of compliance yield. Compliance yield represents the additional revenues that HMRC considers it has generated and the revenue losses it has prevented through its enforcement and compliance activities. HMRC spent around £1.5 billion on such activities in 2020–21 and …
5
Conclusion
It is too easy for taxpayers to be unwittingly lured into tax avoidance schemes. HMRC introduced the loan charge in 2019 to recoup tax from people who used ‘disguised remuneration’ schemes to avoid tax. The imposition of the loan charge on taxpayers who were unknowingly sold an unlawful scheme by …
6
Conclusion
Yet again customer service has collapsed and HMRC’s recovery plans are not clear. For over a decade this Committee has repeatedly reported on HMRC’s inadequate levels of customer service. Following an examination by this Committee in 2016, HMRC’s customer service improved, but since 2017–18 it has been declining. The decline …
7
Conclusion
The benefits of Making Tax Digital to those with simple tax affairs are not clear. The requirement for taxpayers to keep tax records and submit quarterly returns to HMRC digitally is a key part of its 10-year modernisation strategy. From April 2024, HMRC will extend Making Tax Digital to 4.2 …
8
Conclusion
Changed working practices have left HMRC with more office space than it needs. We have long standing concerns about the flexibility of HMRC’s estates strategy which is seeing it move to 13 regional centres with long-term non-breakable property leases. The shift to hybrid working caused by the pandemic has reduced …
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 2020–21.1
9
Conclusion
In its evidence to us, TaxWatch said the legacy of the employment support schemes risks being damaged if more is not done to recover the billions of pounds stolen from them.20 The Association of Accounting Technicians submitted evidence to us in which it said HMRC’s current target for recoveries somewhat …
10
Conclusion
HMRC is responsible for administering Corporation Tax research and development (R&D) reliefs, which support companies that work on innovative projects. There is a scheme for small and medium-sized enterprises, and a research and development expenditure credit scheme, mainly for larger companies. Both schemes are complex and open up opportunities for …
11
Conclusion
The cost of R&D tax reliefs has grown by 241% over the last four years to reach £9.3 billion in 2020–21 (Figure 1). In 2019, UK companies claimed tax relief on £47.5 billion of R&D spending; 83% more than the Office for National Statistics’ (ONS) estimate of privately financed business …
13
Conclusion
HMRC estimates that error and fraud in R&D tax reliefs was £336 million in 2020– 21, or 3.6% of related expenditure (2019–20 – £311 million or 3.6% of related expenditure). The C&AG considers the level of error and fraud estimated by HMRC to be material and qualified his regularity opinion …
14
Conclusion
We asked HMRC how much of the increase in the cost of R&D tax reliefs was down to abuse. HMRC said monitoring was difficult because over time R&D tax reliefs had become increasingly generous and thus an increase in claims would be expected. It also said that claims have consistently …
15
Conclusion
Given the uncertainties in HMRC’s current estimates of error and fraud in R&D relief claims, we asked HMRC what it was doing to improve its estimates. It told us that it was planning a random enquiry programme for R&D claims which will inform its estimate. We expressed our concerns that …
16
Conclusion
HMRC estimated that compliance yield from its tax compliance activities in 2020– 21 was £30.4 billion. Yield was down 18% from the £36.9 billion HMRC generated in 2019–20. HMRC has reported the reduction reflected higher than usual performance in 2019–20 and lower than usual performance in 2020–21. In 2019–20, HMRC’s …
17
Conclusion
We asked HMRC whether it was going to return to the cases it had not taken forward during 2020–21. It told us that, by and large, the action it took in 2020–21 would defer its ability to correct any non-compliance and recover tax, and it would not involve a significant …
18
Conclusion
We raised our concerns with HMRC that the impact of COVID-19 will make it difficult to make like for like comparisons of its performance. HMRC agreed that there will be distortions but said it would do its best to be transparent. It also said it will look at how it …
19
Conclusion
HMRC’s annual report shows that it spent over £1.5 billion on compliance activities in 2020–21.31 The rate of return from those activities varied across HMRC’s five customer groups in 2020–21 (Figure 2). Returns were highest from large businesses, with average yield of £60 for each £1 HMRC spent on compliance, …
20
Conclusion
We asked HMRC whether it would generate more revenue if it concentrated more of its compliance activities on large companies and less on small businesses and individuals. It told us that payback was a key factor when deciding how to deploy its resources, but not the only one. HMRC added …
21
Conclusion
In its evidence to us TaxWatch argued for a substantial investment in tax compliance to ensure that public confidence in the tax system is maintained and enhanced.33 In its evidence, the Association of Accounting Technicians (AAT) argued that HMRC should undertake more audits of taxpayers, and, in its evidence, Unchecked …
22
Conclusion
HMRC told us the nature of tax avoidance has changed. It said the bulk of avoidance schemes now relate to employment taxes and are not targeted at affluent people but middle-income earners, some of whom knowingly enter avoidance schemes and others who unwittingly get involved.39 In 2019, HMRC introduced the …
23
Conclusion
We are concerned about how taxpayers are protected from those who promote avoidance schemes, and the financial damage that can follow if taxpayers unknowingly enter unlawful schemes. We therefore asked HMRC what progress it had made in pursuing the promoters of illegal schemes. It told us its strategy for tackling …
24
Conclusion
We asked HMRC whether it could do more to publicise its successes, including the naming and shaming promoters of avoidance schemes. HMRC explained how it was seeking to reduce demand through transparency. It said it published annual reviews of the tax avoidance market and it was more quickly disclosing information …
25
Conclusion
This Committee has regularly examined HMRC’s customer service performance. In 2010, this Committee concluded HMRC’s performance in responding to calls had been poor.43 In 2016, the Committee found that customer service levels had collapsed as a result of HMRC assuming two new services, automated telephony and paperless self- assessment, would …
26
Conclusion
We asked HMRC why response times were very poor at the end of 2020–21. HMRC said in the first half of 2020–21 it had diverted 5,000 customer service staff to work on COVID-19 support schemes. HMRC also said that during this period it did not have backlogs. It told us …
27
Conclusion
HMRC told us that its performance was improving in 2021–22. It said it had got helpline performance up to what it regarded as a “decent service”, and had thus diverted resources to handling post, as this was the area with most backlogs.48 HMRC’s latest published quarterly performance update, shows that …
28
Conclusion
We asked HMRC why call handling performance had been declining before COVID-19. HMRC told us that it was resourced to give a “decent” rather than “brilliant” service and it had efficiencies that it had to deliver. It said that although some phone contact was very important to HMRC and to …
29
Conclusion
For 2021–22, HMRC has replaced most of its response time measures with metrics of whether it is easy for customers to access and deal with HMRC.52 Rather than call handling times, it now publicly reports the percentage of callers wishing to speak to an adviser who are able to get …
30
Conclusion
HMRC’s Making Tax Digital initiative is central to its 10-year modernisation strategy. It requires taxpayers to keep tax records and submit returns digitally. HMRC introduced Making Tax Digital for VAT first. The largest VAT traders provided digital returns in 2019, and the smaller ones are being required to do so …
31
Conclusion
We asked HMRC what Making Tax Digital was for. HMRC told us Making Tax Digital was about making tax easier, keeping tax in line with the digital age and making business more productive.56 HMRC also told us that, by providing real time or up-to- date data on taxpayers, Making Tax …
32
Conclusion
We were concerned about the impact of Making Tax Digital on the smaller taxpayer, such as a retired person with rental income from one property. We noted that other administrative tax changes, such as on-line self-assessment, have not provided expected benefits to taxpayers because of problems with software.58 We pointed …
33
Conclusion
We asked about the support and software that would be available to small taxpayers. HMRC said it was gearing up to support customers but that it would not be delivering software itself. Nevertheless it had received pledges from industry that they would, as they did for VAT, provide free-at-point-of-service software …
34
Conclusion
We have long-standing concerns about HMRC’s estates strategy. In April 2017, long before COVID-19, this Committee raised concerns about HMRC locking government into holding larger properties for longer than needed. The Committee raised similar concerns again in January and April 2018. In January 2021, we concluded that HMRC’s estate strategy …
35
Conclusion
Given the change in HMRC’s need for office space, and wider changes in the commercial property market, we asked HMRC whether its estate strategy was right for the future. HMRC told us its strategy was the right one and was part of making HMRC fit for the future by providing …
36
Conclusion
We asked about the Cabinet Office’s role in co-ordinating government office space. HMRC said it relies on the controls operated by the Cabinet Office, who look at all new property deals and lease extensions, and make sure those needing space are pointed at HMRC’s buildings. HMRC said space would be …