In its report about HMRC’s annual performance, the PAC identified areas of concern relating to customer service, the tax gap, tax reliefs and the tax affairs of multinationals.
It said HMRC does not scrutinise effectively whether tax reliefs are being used as intended, nor does it provide Parliament with sufficient information on the costs of tax reliefs and their effectiveness.
The PAC also criticised HMRC’s contract with Concentrix to investigate cases of potential fraud and error, which turned out to be “a complete failure”
We are concerned that HMRC may be painting too rosy a picture of its success in reducing the tax gap
Public Accounts Committee
The committee said it was not convinced HMRC had a credible plan to make savings without damaging customer service.
According to the report, HMRC collected £536.8bn from taxpayers in 2015-16, £19.1bn more than in 2014-15.
HMRC’s costs also increased from £3.1bn to £3.2bn, while it missed its £26.3bn target for compliance yield (from tackling those who seek to avoid or evade their tax liabilities), after achieving £26.6bn in 2015–16.
Meanwhile, the Revenue reduced tax losses but saw the balance of tax debt (tax that is overdue and outstanding at the end of the year) rise to £26.7bn from £26bn.
Despite welcoming the introduction of country-by-country reporting of the activities of multinational companies, the PAC warned it would not provide the “much needed” transparency over their tax affairs as the information will be supplied to HMRC on a confidential basis.
Moreover, the committee said the way that the Revenue tackles the tax gap remains “unclear”, as the gap estimates continue to fluctuate year to year.
“We are concerned that HMRC may be painting too rosy a picture of its success in reducing the tax gap,” it added.
The PAC said that, despite its recommendations, HMRC “still does not make tax reliefs sufficiently visible” in order to support parliamentary scrutiny and public debate about areas where the UK chooses not to collect tax.
It recommended the Revenue include an analysis of tax reliefs and their costs in its annual report to improve accountability about the areas where government has chosen not to collect tax.
It also criticised the lack of an “adequate plan” to digitise the tax system.
“HMRC faces an enormous challenge to maintain services, while delivering spending cuts, restructuring its business, replacing the Aspire contract, at the same time as re-locating almost all its staff and dealing with the implications of Brexit,” the PAC said.
“HMRC has lost its chief digital and information officer as a result of market pressures and losing further key staff would damage HMRC’s capability to deliver transformation and manage the risks when its IT contract ends.”
Anita Monteith, ICAEW’s technical tax manager
If MTD is not properly implemented, confidence in the tax system and in HMRC will be severely damaged which will have a likely knock-on impact on UK tax compliance
Anita Monteith, ICAEW’s technical tax manager, said the Making Tax Digital proposals would take at least five years to be implemented “properly” and raised concerns that, if rushed, it could cause major problems for businesses and damage the credibility of the UK tax system.
She said, “If MTD is not properly implemented, confidence in the tax system and in HMRC will be severely damaged which will have a likely knock-on impact on UK tax compliance.”
The PAC pointed out that, when HMRC made 5,600 staff reductions in 2014–15, customer service for personal taxpayers collapsed and HMRC had to recruit 2,400 additional staff in the following year to stabilise services.
It urged the Revenue to prove by March next year that it has a credible plan to make savings without damaging customer service, and urged it to agree on a contingency plan with the Treasury in case its projections fail to be implemented.
Furthermore, it advised HMRC to review the complaints it receives, arguing that there are still “too many” and the vast majority are upheld in part or in full.
According to data obtained by Saffery Champness through a Freedom of Information Act request earlier this month, complaints to HMRC have almost reached their highest level since the crisis.
HMRC handled a total of 81,066 complaints in 2015/16, over 7,000 more than the previous year (73,646) and an increase of more than 16,000 on 2013/14 (64,313).
This is the closest the figure has gotten to the record high level of 83,917 complaints in 2008/09, during the financial crisis.
This month, HMRC announced it was terminating its contract with Concentrix six months earlier than scheduled, following a number of cases where customers had their tax credits removed in error by the US company, which was responsible for checking entitlement.
Around 250 Concentrix staff members were transferred to HMRC and all 181,000 cases transferred from Concentrix to HMRC have been finalised.
The contract had received fierce criticism after Concentrix wrongly removed tax credits from claimants.
The report said, “Concentrix’s actions have resulted in many tax credit claimants being wrongly accused of fraudulent claims and so losing their payments, causing unnecessary distress and hardship.
“HMRC must ensure that lessons are learned from how this contract was designed and managed to make sure that such an unacceptable breakdown in service is not repeated.”
In one case, a 19-year-old single mother lost her tax credits because the company claimed she was married to a dead 74-year old man.
The PAC said it would return to the subject in the New Year when the results of an investigation into the contract being undertaken by the National Audit Office are published.
The committee's report also urged the Revenue and the Treasury to lead the global debate for public country-by-country reporting.
Meg Hiller, chair of the PAC, said, “The lack of a convincing fall-back plan to safeguard service as HMRC undergoes significant change remains a looming threat to its ability to collect tax from individuals simply trying to pay their fair share.
“Contingency planning should not be an optional extra. By the Spring we will expect to see evidence that HMRC has agreed measures with the Treasury to ensure it is not left playing 'catch-up' at taxpayers’ expense.
“We also look forward to meaningful action to prevent a repeat of the failings embodied by its contract with Concentrix—a venture with appalling human consequences, about which much has already been said by our Committee and elsewhere.
“We call on HMRC to build on the work of our committee, drive the debate internationally about public country-by-country reporting and push for real change in the global tax system."
Responding to the report’s findings, an HMRC spokesperson said, "We now consistently answer 90% of calls first time, in an average of less than five minutes.
"We have invested heavily in customer services, recruiting more than 3,000 new staff who are also available outside normal office hours when many of our customers choose to call us.
"This is alongside a new range of popular digital channels for customers to get the information and support they need without having to pick up a phone or pen.
"Efforts to crack down on tax avoidance, evasion and fraud have also secured £26.6bn over the last year.
“We’ve also led the way on improving global tax transparency and tackling tax avoidance by multinationals.
"We have put rules in place to make UK multinationals tell us what tax they have paid and what they do in every country in which they operate. Tax authorities in many other countries will share the same information with us about their multinationals operating in the UK.”