MPs give HMRC three months to improve “unacceptable” customer service

The report was compiled in response to HMRC’s 2021–22 Annual Report and Accounts, published in July. As well as HMRC performance levels the MPs make recommendations around compliance yield, the tax gap, error and fraud on covid-support schemes, fraudulent VAT registrations, how HMRC deals with tax debt, and abuse of research and development tax credits.

HMRC customer service

In HMRC’s annual report the tax authority acknowledged declining customer service levels, though said it was working to move more customers onto online platforms to relieve pressure on post and call handlers. While it recognises that some customers will always need to speak to someone, it says much of the “low-value demand” can be removed through better customer self-service and processes. Outside these planned changes, HMRC said it would be “difficult to deliver any new efficiencies before 2024–25”.

In 2021–22, HMRC responded to just 39.5% of post within 15 days, compared to 70.3% in 2019–20, while the average speed of answering calls to helplines was more than 12 minutes, almost twice as long as two years previously. HMRC added that its ability to manage upheaval such as the pandemic was impacted by reductions in staff, with the customer service team being cut by more than 6,000 staff in the last five years.

The PAC said it was “surprised” that HMRC phone lines had been closed when it could not cope with high demand, saying it was “not acceptable not to answer calls from people who are trying to pay the government money”. It added that while it understood the plans to move towards a more digitalised system, it did not believe this justified the reduction in staffing levels, which it claimed was “premature” and “effectively cuts rather than efficiency savings”.

In the report, the committee said: “We are not convinced that its plans will sustainably reduce demand for traditional channels or deal with the unacceptable level of service that taxpayers and agents are currently suffering. The move to online services will not happen quickly and will not be appropriate for all circumstances or customers.”

The committee told HMRC to write to it within three months setting out its plan to improve customer service including:

• the metrics it will use to monitor its customer service performance, including those it needs to demonstrate it can answer calls and deal with post in a timely manner
• the level of customer service taxpayers and their agents can expect to receive over the next three years
• how it will support customers who are unable or unwilling to use digital platforms rather than post or telephone
• contingency arrangements if its plans to reduce demand for traditional channels are unsuccessful or take longer to implement

The Chartered Institute of Taxation had submitted evidence to the PAC highlighting concerns over the difficulties both advisers and taxpayers face getting timely responses and action from HMRC and this was cited in the committee’s report.

Commenting after the publication of the report, CIOT President Susan Ball said the committee was “right to be challenging HMRC on customer service levels” and the delays currently faced by taxpayers and advisers are “not acceptable”.

Dealing with tax debt

Elsewhere in the report, the PAC says HMRC has “further to go” to be able to effectively differentiate between taxpayers who are genuinely struggling with their bills and those who can afford to pay but choose not to. With tax debt on the rise again, HMRC says it is varying individual approaches depending on whether a taxpayer is in “genuine financial distress” but added that its ability to understand individual circumstances will be “limited” until it has completed its single customer account project, which will combine taxpayers’ records that are currently held in its different digital systems.

Covid-support schemes

The committee also said HMRC’s plan to recover just a quarter of losses made through fraud and error on its COVID support schemes “does not go far enough”. An estimated £4.5 billion was lost on schemes including the Self-Employed Income Support Scheme and Coronavirus Job Retention Scheme, almost 5% of the total support provided during the pandemic. HMRC has been given £100 million to fund a temporary taskforce to investigate this and has already opened 40,000 investigations so far, but it forecasts that it will have recovered only around £1.1 billion by the time the taskforce winds down from March 2023.

The report said: “We believe that there is a moral duty to pursue fraud to ensure fairness and maintain a level playing field for individuals and businesses that did not abuse the schemes, rather than HMRC being seen to reward those that were dishonest. HMRC should be much more ambitious with its plans to tackle fraud and error and recover losses. It needs to rethink its approach so that it can bring in more money with its limited resources, ensuring honest claimants are not left at a relative disadvantage simply because they are more compliant.”

VAT fraud

Similarly, the report recommended that HMRC engage with international counterparts to learn how to more effectively prevent fraud in VAT registrations. It said it had concerns that HMRC may be “lagging behind” other tax authorities in this area, highlighting a case where a criminal was successful in a fraudulent VAT claim in the UK, whereas safeguards adopted by German tax authorities were able to identify the same activities earlier.

Other recommendations

The committee also called for HMRC to lay out what level of investment would be needed to reduce the tax gap, amid concerns that the Government is missing out on billions of pounds of lost revenue each year. HMRC estimates that the tax gap was £32 billion in 2020–21, making up 5.1% of all tax liabilities, the same proportion as in 2019–20.

Further recommendations included carrying out analysis of the impact of research and development tax reliefs on the UK economy and a return to setting and publicly announcing a formal compliance yield target with the Treasury from April 2023. After not setting a target since 2020–21 due to the pandemic, HMRC is aiming to achieve a yield of £36 billion in 2022–23, which could include cases opened several years ago.

Read the full report here.