HMRC tell MPs they will absorb rising costs of dealing with taxpayers

Jim Harra followed up his appearance before the House of Commons Treasury Committee on 18 October with a letter to the committee chair, Harriett Baldwin, providing responses to additional questions she had put to him about the number of people joining the tax system, HMRC resourcing, Making Tax Digital, the loan charge and covid-19 support schemes compliance.

More taxpayers, more complexity

During the committee hearing Harra had told the MPs that “[a] combination of earnings growth, growth in investment returns and policy decisions means that there are more and more taxpayers each year” and also that “more and more taxpayers will be interacting with the more complex ends of the tax system, and that tends to drive contact with HMRC”. The committee followed this up with a number of questions in their letter.

Asked how many people HMRC expect to be joining the tax system in the 2023-24 and 2024-25 tax years, Harra refers the committee to the OBR’s March 2023 Economic and Fiscal Outlook which forecasts that the number of income tax payers will increase from 34.6 million to 35.8 million in 2023-24 and to 36.5 million in 2024-25.

The committee also asked what proportion of the people joining the tax system they expect to have complex tax affairs, and how many taxpayers already in the system they expect to become more complex over the same periods. HMRC is unable to provide them with any numbers here, but observes that the majority of taxpayers dealing with complex tax affairs are likely to already be in the tax system.

Additionally the committee asked what the estimated cost for HMRC of serving additional taxpayers and additional complexity is and whether they have been granted additional funding from the Treasury to meet that cost. Again HMRC are unable to provide numbers, stating instead that they aim “to absorb the additional costs arising from growth in the number of taxpayers interacting with the tax system, wherever possible, through making efficiencies, such as our work to reduce customer contact demand and maximise digital self-service”.

Making Tax Digital

Asked about the start-to-finish cost of MTD for Income Tax Self-Assessment, HMRC replied that the forecast cost of delivering the project within its current scope, inclusive of five years of running costs, is £751.5m, generating a positive return on investment (RoI) of 2.3:1.

Harra continued: “This is predicated on an investment appraisal period covering five years to 2027-28 as well as sunk costs from 2016-17 to 2022-23, and five years of benefits for each phase of implementation, taking us to 2033-34. The wider Making Tax Digital programme, including VAT (implemented in 2019) and Penalty Reform, is currently showing an RoI of 3:1. RoI over 2:1 is deemed “high value” based on official Cabinet Office guidance.”

The Loan Charge

The committee asked how many Loan Charge cases HMRC settled in the 2022-23 tax year and how much were these settled for.

HMRC replied that, to the end of March 2023, the total number of disguised remuneration settlements since Budget 2016 was 21,900 bringing £3.9bn into charge. This is an increase of 1,700 settlements and £0.5bn yield since the last calculation, which covered the period to March 2022.

These increases are made up of a combination of new settlements and an uplift in previous years’ settlements, HMRC state, noting that cases from previous years may be newly identified to be disguised remuneration.

The largest settlement since Budget 2016 is “not more than £30m”. This is a settlement with an employer, responsible for the PAYE of a number of employees.

The committee also asked how many people HMRC have identified as requiring extra support over the Loan Charge issue. HMRC have told them they do not hold this information specific to the Loan Charge or to disguised remuneration tax avoidance.

Covid-19 support schemes

In his letter to the committee, Harra also updates the MPs on how much has been recovered from error and fraud in the covid-19 schemes administered by HMRC. Up to the end of September 2023 HMRC has recovered overpayments of £1.2bn from grants under these schemes. Additionally, a further £430m was prevented from being paid out on fraudulent claims.