Public Accounts Committee - HMRC customer service at record low

The PAC concludes that HMRC’s overall level of customer service has reached “an all-time low because of conscious choices made by HMRC and HM Treasury”. The committee expresses disappointment that “services have continued to deteriorate” since its last report.

The report quotes the CIOT that HMRC’s service levels are the “single greatest concern expressed by its members, and that they are having a detrimental impact on cash flow, the costs of doing business, attitudes to tax compliance and trust in the tax system”.

The report notes that, while HMRC ‘insists’ it has good-quality digital services for customers, CIOT, the Association of Taxation Technicians, the Low Incomes Tax Reform Group and ICAEW felt that HMRC had “implemented its digital services poorly and with inadequate testing, and that they lacked the functionality needed for taxpayers and agents to use effectively.”

The committee recommends: “HM Treasury and HMRC should ensure HMRC’s customer services are sufficiently resourced in the short as well as the longer-term so that it can meet its service standards until its digital services adequately address the needs of taxpayers and their agents”.

R&D credits

Another area focused on in the report is research and development tax reliefs, where the committee criticises HMRC for being ‘slow’ in identifying the scale of error and fraud in the reliefs but also notes criticism of the impact of its approach on legitimate claimants.

Citing CIOT evidence, the committee notes that tax professionals wrote to them “with concerns about the impact of HMRC’s volume compliance approach on companies. They felt HMRC compliance staff treated companies with suspicion and lack the necessary expertise and training to determine whether projects qualify as research and development for tax purposes. They raised concerns that HMRC’s approach was discouraging firms from investing in research and development.”

The committee concludes that HMRC’s approach to tackling abuse of R&D credits “does not sufficiently target those committing serious fraud over those making honest mistakes”. It recommends HMRC go back over previous years both to tackle ‘egregious fraud’ and to tell “those businesses who made honest mistakes to correct their returns or risk investigation”.

Tax debt

In the report, the committee recognises that HMRC is making progress in “tackling the extent of money owed in unpaid taxes”, however, they argue that “HMRC should have sufficient checks to protect taxpayers from being pursued too forcefully”.

The committee recommends that HMRC should establish a clear, easily accessible route for taxpayers to report issues they face when dealing with debt collection agencies working on behalf of HMRC.

Address registration

The report highlights HMRC's ‘inadequate’ response to the ‘distress’ caused to innocent citizens due to companies registering with incorrect addresses.

The committee says it expects HMRC to take serious action against companies registering with the wrong addresses, and requests HMRC report back to the committee on its plans for ensuring innocent people do not suffer from bogus registrations and demands for tax from the wrong people.

Off-payroll working

Regarding IR35 rules, the committee expresses concern “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”.

The committee asks HMRC to provide more details on tax amounts in recent criminal prosecutions and to share the number of ongoing IR35 litigation cases and the associated tax liabilities, as well as to assess the impact of its approach to administering IR35 reforms on the use of contractors in different sectors.

The tax gap

HMRC’s reliance on the tax gap measure is not providing a sufficiently stretching target for its compliance performance, the MPs argue. They point out that the tax gap is subject to a variety of factors, not just HMRC’s compliance performance, and that its relationship to compliance yield is not straightforward.

They suggest that HMRC places too much reliance on the tax gap, when its compliance yield targets are a more direct measure of its performance.

The report asks HMRC to “demonstrate that its compliance yield target is sufficiently ambitious to provide stretch in HMRC’s performance each year and to take account of inflation in the tax base”.

You can read the full report here.