PAC has recommended more resources for HMRC so that it can meet its service standards. It has found that HMRC’s approach to off-payroll working is deterring legitimate economic activity.

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The House of Commons Public Accounts Committee (PAC) has published its report on HMRC’s performance in 2022/23, drawing conclusions and making recommendations across six key areas (summarised below). The report refers to evidence provided by ICAEW’s Tax Faculty on the impact of HMRC’s service levels on businesses and the wider economy.  

HMRC’s service levels 

Conclusions: HMRC’s service levels continued to deteriorate in 2022/23 and are well below its service standards. For example, it took on average 16:24 minutes in 2022/23 for HMRC to answer the phone, up from 12:22 minutes in 2021/22. An increase in the number of taxpayers, including those with complex affairs, has increased the demand for HMRC’s services. HMRC does not have the resources to meet this demand and is focused on reducing post and phone contact by encouraging taxpayers to use its digital services. However, there is concern that HMRC’s digital services are not good enough in some respects. 

Recommendations: The government should ensure HMRC’s services are sufficiently resourced so that HMRC can meet its service standards until its digital services are fit for purpose.

Caroline Miskin, Senior Technical Manager, ICAEW Tax Faculty said: “Telephone waiting times have deteriorated further in 2023/24, to 23 minutes on average. HMRC’s digital services need investment so that they can be improved more quickly. I would remind members of the opportunity to feedback on HMRC’s performance in the survey which closes on 8 March.”  

Tax debt 

Conclusions: HMRC has made progress in tackling tax debt. Total debt is expected to reduce slightly over the course of 2023/24, as HMRC is getting more value from the external agencies it uses to collect debts. However, there is evidence that taxpayers are being pursued repeatedly for often trivial amounts. Also, it is not easy for taxpayers to raise concerns about HMRC’s debt collection activities. 

Recommendations: HMRC should make it possible for taxpayers to report issues they face when dealing with debt collection agencies working on behalf of HMRC. HMRC should provide PAC with a summary of any issues raised and how HMRC dealt with them. 

Address registration 

Conclusions: There is a widespread issue with bogus registrations from companies seeking to defraud HMRC. HMRC does not do enough to minimise the impact on an individual when their address is used in error to register a business.  

Recommendations: HMRC should update PAC on the scale of the issue and the level of tax at risk. HMRC should set out its plans for ensuring innocent people do not suffer from bogus registrations. 

Off-payroll working (IR35) 

Conclusions: Since the IR35 reforms, employers have moved up to 200,000 workers from contractor status onto their own payroll. HMRC is using litigation through the courts to test the employment status rules, and it may need to update its guidance and tools for the courts’ judgements. PAC is concerned that a lack of confidence in how to apply the rules, together with HMRC’s tough approach when taxpayers make mistakes, is deterring companies from using contractors unnecessarily. The number of criminal prosecutions has fallen as HMRC has focused its resources on the most serious cases. However, PAC is concerned that HMRC’s approach to serious abuse is not deterring criminal activity sufficiently.  

Recommendations: HMRC should assess the impact of HMRC’s approach to administering the IR35 reforms on the use of contractors in different sectors. PAC has requested that HMRC provides further details for active litigation cases for IR35 and for criminal prosecutions in recent years. 

R&D tax reliefs

Conclusions: HMRC has improved its methodology and now has a more accurate picture of the level of abuse of research and development (R&D) tax reliefs. However, HMRC’s approach to tackling offenders does not sufficiently target those committing serious fraud over those making honest mistakes. Although HMRC’s estimate of R&D error and fraud in 2020/21 has more than trebled, from £336 million to £1.1 billion, HMRC’s approach is too passive and places too much reliance on companies correcting their own mistakes. 

Recommendations: HMRC should ensure it reviews claims made for earlier years. HMRC should go back sufficiently far to tackle egregious fraud. It should tell those businesses who made honest mistakes to correct their returns or risk investigation.

The tax gap

Conclusions: HMRC places too much reliance on the tax gap measure to justify its performance, rather than focusing on achieving its compliance yield targets, which are a more direct measure of its performance.

Recommendations: HMRC needs 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. 

ICAEW’s Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.


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