MPs question HMRC on scope of Job Retention Scheme
The Treasury Select Committee met remotely today (Wednesday 8 April) to take evidence from HMRC on the economic impact of coronavirus. The witnesses were Jim Harra, First Permanent Secretary and Chief Executive of HMRC, and Cerys McDonald, Director of HMRC’s COVID-19 policy co-ordination. Mel Stride, Conservative, is chair of the committee.
MPs expressed their concerns about people caught in the gap between ending an old job and starting a new one, worries about the ability of HMRC to manage the many COVID-19 mitigation schemes and anxiety about taxpayers abusing the system.
A summary of the discussion follows.
Alison Thewliss, SNP, (pictured below courtesy of UK Parliament) began proceedings by asking for clarification on the rules underpinning the job retention scheme and how HMRC will enforce these to prevent the scheme from being abused.
Harra confirmed that under the scheme, employees could be furloughed for a minimum three-week period. During this period, they should not carry out work for their employer. They can undertake training (provided it does not produce a product for their employer to sell), work for other companies during this time or volunteer, eg for the NHS.
Harra said that he was aware of instances where employees have reported being asked to undertake work during their furlough period. As this goes against the intentions of the scheme, HMRC have introduced an online ‘hotline’ to allow employees to report abuses of the scheme. However, he said that he expected the overwhelming majority of businesses to be properly compliant with the rules underpinning the scheme.
In instances where employers have been found to be in breach of the scheme, Harra said that HMRC had the ability to prevent them from receiving furlough payments (which could be returned if they had already been paid). He added that HMRC also had the ability to enforce criminal penalties in cases where businesses ‘knowingly try to defraud’ the job retention scheme.
Harra said that there were four levels of protection built into the scheme to prevent abuse. These are:
• The design of the policy design, which ensures employees are eligible for the scheme only if they were on payroll by 28 February (this allows HMRC to use existing payroll systems and employee details)
• Online protections, requiring employers to prove their credentials in order to make a claim via the HMRC website
• The ability of employees to contact HMRC if they have evidence of employers abusing the scheme
• Wider downstream secondary checking and verification capabilities#
A recurring theme during the meeting was the impact on workers who left employment on or before 28 February – or were due to start in a new job in March.
In response to Thewliss, Harra said that HMRC had made arrangements for employers to be able to take back recently departed staff that they could then place on furlough.
However, for those who were due to start work after 28 February, he confirmed that they would not be eligible for this particular scheme, but that they could access tax credits and Universal Credit (if eligible) as an interim measure.
Harra also confirmed that the scheme was not designed to allow employers to part-furlough workers by reducing their hours. He also said that if employees were asked to return to work earlier than the initial three-week period, they would have to be restored to full salary.
Both Harra and McDonald confirmed that HMRC were engaged in discussions to ensure that furlough payments took into account those on maternity leave and other ‘labour market complexities’ that may have an impact on the operation of the scheme.
Committee chair Mel Stride asked Harra if he was confident in HMRC’s ability to deliver the job retention project on time, to budget and at scale given the historical challenges that government has faced in delivering big IT projects.
Harra expressed confidence in HMRC’s ability to roll-out this project and ensure that it is ready to begin making payments to employers before the end of April.
He said that as of this moment, the system was being live tested with a ‘select number of employers’. He said that he expected the system to be able to cope with the ‘very large volume of claims we (HMRC) expect to receive’.
Following live testing, the next step in the roll-out of the scheme will be to ensure that a support package is in place to help employers to use it themselves, with little or no need for HMRC support.
He added that he expected the scheme to be operational on 20 April to enable employers with payroll obligations at the end of the month to be able to access payments. He also confirmed that HMRC will do everything that they can to provide help and support to employers in need of support. This will include extra support for around 600 businesses without access to online facilities and for employers using bureaus to provide their PAYE processes.
Stride then asked Harra if he could identify a ‘weak link’ in the project. Harra replied that the biggest challenge HMRC faced was in ensuring that the maximum number of employers are able to use it on a self-service basis, without the need to contact HMRC for help. If HMRC was faced with a surge of applicants needing help, he acknowledged that they may struggle.
To help ensure that HMRC is ready to deal with enquiries, Harra confirmed that a total of 5,500 staff would be deployed to this work. In addition to support from its private sector contractors, he said that HMRC was working with the Chartered Institute of Taxation and ICAEW to ensure their members were updated and able to provide support to their clients.
Stride sought reassurances that employers will be able to access simple and accurate guidance on the job retention scheme, as this was often ‘overlooked’.
Harra said that HMRC had produced – and is constantly reviewing – guidance that was first issued on 26 March. Its publication has led to a marked drop in the number of queries that it has received. Practical operational guidance will also be published this week setting out how employers can get ready to access the scheme when it goes live. This will include instructions on how they can compile their claims in advance.
Alison McGovern, Labour, asked for clarity on the types of training that employees could take while furloughed.
Harra said that employers could ask employees to undertake training while furloughed, but that this was not permitted if it resulted in the production of goods for sale or profit. He confirmed that low paid workers should be paid at least the National Living Wage (NLW) if they are asked to undertake training and their furlough payments are less than the NLW. He also said that the guidance on training would be kept under review.
McGovern then asked if the job retention scheme would allow employers to rotate their furloughed staff. Harra said that this was permitted, provided that individual workers were furloughed for the minimum three-week period.
Harra was also asked if the scheme could be adapted to support employees that have seen their hours reduced (short working). He said that while he appreciated that some employers were reducing staff hours as opposed to furloughing workers, the primary purpose of the job retention scheme was to prevent redundancies and to allow the economy to recover quickly. He said that help was available through the tax credit and universal credit regimes.
McGovern then asked Harra to estimate the number of employers that HMRC expects to access the scheme. Harra said that the actual number was difficult to estimate, but that the system had been designed to handle applications from two million PAYE schemes.
Harra was asked how HMRC’s response to COVID-19 could change its operations moving forward. He said that the response to the virus had had a profound effect on the organisation. Some 80 per cent of HMRC staff were now working from home and the organisation had shown its ability to respond to a crisis at pace. He acknowledged however the activation of the job retention scheme at the end of the month meant that a ‘challenging and testing period’ would shortly follow.
Anthony Browne, Conservative, asked when companies could expect payment from the job retention scheme. Harra said payments should follow four to six days after a claim has been submitted. Employers will be able to make claims 14 days in advance of running their payroll and it has been designed to accommodate different pay periods (i.e. weekly or monthly).
Browne also reflected on the challenges of the 28 February cut-off for eligibility for the scheme. Harra again acknowledged these concerns and the other areas of support available to people caught in this situation.
A specific concern was raised by Browne (and later by his colleague Harriet Baldwin) regarding some supply teachers who are paid by umbrella companies, and have seen their earnings fall below the NLW rate. Harra said that there was no compulsion to pay the NLW during furlough, but that the Government expected employers to do the right thing.
Harra was also asked about the vulnerability of the scheme to abuse. He again referred to the four lines of defence provided in an earlier response to Alison Thewliss (see above).
Harriet Baldwin, Conservative, expressed concern that the scheme could force some employees to return to their former employer in order to be furloughed, if they left just before the introduction of the scheme. This could present problems for some. McDonald said that the scheme was designed to prevent large-scale redundancies and ensure workers remain connected to the labour market. She acknowledged that the hard cut-off date was a concern for some, but said that it would benefit the overwhelming majority of workers
Rushanara Ali, Labour, (pictured below courtesy of UK Parliament) asked about self-employed workers and why people have to wait until June to receive grants. Harra expects that by mid-May HMRC will have identified and contacted people who could receive the grant, and will strive to get the money to them before June. About 3.8 million qualify for this scheme, he said. Ali finds it ‘shocking’ that people will have to wait until June. Harra said the welfare system can provide money for the self-employed ‘to tide them over’. Gathering bank account details and going through old tax returns takes time for HMRC, explained Harra.
Those in the self-employed category who do not qualify can use the guaranteed loans scheme and people can obtain tax credits if their pay has fallen and also defer VAT, said Harra. Ali asked about those slightly above the £50,000 profits threshold. Harra said this means it is targeted at those most in need. If HMRC had more time, they could have looked at a range of measures to help people just above the threshold, but it would ‘take years’ to have a system that looks at household income rather than individual income, he explained. About 95 per cent of self-employed people will qualify on the current scheme.
Stride asked a follow-up about how HMRC assess if a self-employed person was affected by COVID-19, to which Harra admitted there is no way of checking this before giving money, adding ‘we are relying on people doing the right thing’.
Felicity Buchan, Conservative, asked about general risks to HMRC. Harra replied that his three priority aims are to keep HMRC staff safe (absence levels are remarkably low, he said), stand up the support schemes as fast as possible and keep regular services going, especially to help people with debt. Harra is ‘very confident’ in the ‘robustness’ of HMRC’s IT systems to operate COVID-19 related schemes.
On possible tax evasion and tax avoidance because of the measures, Harra said HMRC is using ‘common sense’ by not adding to the burdens of small businesses but added that HMRC’s work on tax evasion continues.
Which self-employed will miss out on help? People with a second job may miss out, admits Harra.
On people falling between the cracks in the Job Retention Scheme because of the February 28 cutoff date, Harra told Buchan about the difficulty of designing and implementing a scheme to help such people to make a difference today.
We learned that the VAT deferral is worth £30 billion to businesses and the self-assessment deferral is worth £13 billion to income tax payers.
On the self-employed scheme, Stride said he cannot understand why dividends generated through self-employment and taken through a business should be excluded. Harra said people qualify for the furlough scheme if they are employed through their own company. He added that there is no way HMRC know if dividends are used in lieu of wages or by way of investment.
Labour’s Angela Eagle asked if the COVID-19 schemes used by more people than perhaps anticipated causes a problem for HMRC. The Chancellor has not set a cap on these schemes, reminded Harra, adding that it does not put a greater strain on HMRC. He urged employers to self serve on GOV.UK.
Is the number of schemes layering complexity for HMRC? asked Eagle. Harra answered that accounting for people ‘on the edges’ inevitably leads to complexity, and the Job Retention Scheme was the priority.
When asked about the low level of absenteeism at HMRC, Harra said it is a result of maximising the chance for people to work from home, increases to the opportunity to serve ‘customers’ (taxpayers) from home, and deep cleans of HMRC offices. On Monday, HMRC received 97,000 phone calls and 21,500 web chats (he suggests taxpayers use web chats).
Steve Baker, Conservative, pressed on some of the hard cases he has come across; he is concerned about personal service companies (PSCs) and people who have just changed their jobs. On the latter, is it possible to put them on 80 per cent of their old pay? McDonald replied HMRC would need a two-year run-in to develop a system to help such people caught between jobs. On the approach to deferred tax, HMRC have an ‘excellent’ record of helping people with Time to Pay and they are ‘very effective’, said Harra. Harra confirmed to Baker that there will be no late payment penalties or interest for people who deferred the payment of tax (a statutory instrument will be needed, though). However, HMRC cannot promise tax payment reminders will not go out because it is done automatically.
Harra told Baker that it is difficult to estimate how much tax will be forgone because of all of this but the rule of thumb in normal times is that HMRC lose 10 per cent of unpaid debt.
In terms of when things get back to normal, HMRC insist it will monitor if grants were paid out to the correct people.
Harra told Julie Marson, a Conservative, that HMRC are not setting aside any work, although there is temporary strain on their services. The main pressure is on keeping HMRC staff safe and working. HMRC are more flexible than they thought, remarked Harra. Inevitably some tax reforms and administrative reform will happen later than HMRC planned, however, forecast Harra.
HMRC have not asked the Treasury for money, although they have informed Treasury that ‘there will be a bill’, joked Harra.
On HMRC’s move from local and regional centres, Harra said that strategy will not change, HMRC are financial committed to the programme but there may be delays to the construction of regional centres.
Stride closed the two hour session by reiterating the importance of clear guidance on GOV.UK and easy navigation around the website, to reduce strain on HMRC’s helplines.
The full session can be viewed here.
By CIOT External Relations Team.