HMRC defends customer service strategy as MPs highlight vulnerable taxpayer concerns

Witnesses:

• John-Paul Marks, HMRC’s First Permanent Secretary and Chief Executive
• Jonathan Athow, HMRC’s Director General for Customer Strategy and Tax Design
• Cerys McDonald, HMRC’s Director of Individuals Policy
• Jonathan Russell, Valuation Office Agency Chief Executive

Below we have summarised some of the key points. To read the full transcript, please click here.

HMRC Customer Service and Making Tax Digital (MTD)

The session began with discussion about HMRC’s customer service performance and digital transformation. John‑Paul Marks suggested that: “Underlying service standards are improving. We are answering more phone calls more quickly than we were this time last year.” He explained that HMRC’s long‑term strategy is to shift the majority of interactions online: “We want to achieve a digital‑first organisation. Around 80% of our customer interactions are now digital… The objective is to get to 90% by 2030.”

However, MPs raised concerns about vulnerable taxpayers struggling with digital channels. Marks emphasised the importance of improving HMRC’s extra support service for these customers saying HMRC “are working with around 11 voluntary sector partners across the UK for additional advocacy support.”

HMRC’s First Permanent Secretary reported that the tax authority does not have any plans to shut any phone lines down to drive the channel shift, also noting that due to changes in the Budget, they have been allocated about 1,000 additional staff.

The chair of the Committee, Dame Meg Hillier, asked about the impact of AI on jobs, observing that in the banking sector it is thought a lot of junior jobs will go because of it. She asked if this is something that HMRC is looking at. Marks responded that HMRC is already using AI, but it is being used “to augment our agent experience and improve outcomes.” He explained that HMRC is testing telephony summarisation at the moment, where the system is summarising the call outcome and the best next step. He emphasised: “It is still led by the agent but augmented by AI”.

On the MTD rollout, Jonathan Athow confirmed that HMRC is “on track” and MTD for Income Tax is ready to go live in April. He cited some evidence that there are “high levels of understanding in the accounting industry about this and what needs to happen”. Acknowledging that communication is a major challenge, he said: “The challenge… is what we call the unrepresented group… We have already written to them once… we are going to be writing to them again.”

Taxing the state pension

MPs also raised the Chancellor’s commitment that pensioners whose only source of income is the state pension would be exempt from income tax despite the basic pension being set to rise above the personal allowance. MPs pressed HMRC on the feasibility, scope, and complexity of implementing such a policy.

Cerys McDonald started by explaining that the state pension is “currently taxable” and stressed that it is also “quite complicated”. She estimated that there are between 800,000 and 1 million pensioners who receive only the state pension before highlighting that HMRC’s only current mechanism for collecting tax from pension-only taxpayers is simple assessment.  Expanding on the mechanics, she told the Committee: “We send a tax bill after the end of the tax year, often unexpectedly. We currently use that mechanism for about 1.3 million taxpayers.”

The chair of the Committee intervened and said: “That is everyone in receipt of only a state pension, even if you have deferred your pension and you are getting a much higher state pension or a significantly higher amount”. McDonald responded: “What the Chancellor has said publicly is a high-level policy intent. She has referred to individuals in receipt of the new state pension and the basic state pension”.

McDonald further emphasised that the Chancellor’s direction has been clear and “she does not want people who are currently only in receipt of a state pension to receive that tax bill after the end of the tax year.” She continued that any “policy decision here will require legislation”, adding that HMRC will be working with the Treasury and ministers to bring forward legislation to support that policy intent in the next Finance Bill.

John Glen (Con) said that, given the rising state pension due to the triple lock and the unchanged tax threshold, pensioners would increasingly become liable for income tax unless the threshold was raised or a special exemption was introduced. McDonald clarified that the government intends to implement the latter approach, noting this would work similarly to other examples in the tax system that reduce liability based on either someone’s personal circumstances or the characteristics of their income. While acknowledging it adds complexity, McDonald said this “remove[s] the tax liability from… 1 million pensioners… It is a simplification for those low-income pensioners.”

Tax Reliefs

MPs, including Yuan Yang (Lab) and Bobby Dean (Lib Dem), raised concerns about the expansion of non-structural tax reliefs and the potential for exploitation. They highlighted that corporation tax reliefs, including R&D tax credits and the patent box, have grown rapidly since the pandemic.

Athow acknowledged this and said HMRC “do monitor reliefs more generally… We have done evaluations of R&D tax credits and the patent box… We do monitor the growth in those reliefs and, where necessary, take action.” He said that advisory firms have contributed to a surge in claims: “There have been a group of advisers who have sometimes put in what we would call speculative claims and… brought the system into disrepute.”

On whether large firms dominate patent box relief, Athow said there are a lot of small and medium-sized enterprises (roughly 70% of all beneficiaries) that benefit, adding: “It will… reflect who owns that intellectual property”. He agreed with MPs that reliefs require continual scrutiny. Marks also accepted the complexity of the reliefs saying: “We have a programme of simplification, making sure that we are improving them where we can”.

Loan Charge

The Committee took time to examine the recent McCann review and its consequences for taxpayers affected by the loan charge. Marks’ message was that HMRC supports the revised settlement offer and it will not be extended to those who have already settled: “My message to anyone who has not yet settled under the loan charge is to be in touch with HMRC… Most could see reductions of 50%. Around a third may now not have to pay anything at all.” Those who previously settled their tax affairs under previous legislation should consider it as “complete.”

Marks reiterated HMRC’s commitment to supportive engagement saying “We have time‑to‑pay arrangements and an extra support team in place… If anybody wants to access additional support, they are always welcome to contact us.”

Other tax-related topics

During the session, other tax-related topics, including the tax gap, property taxes, inheritance tax and HMRC data security system were also debated, as well as child benefit eligibility.

On the tax gap, the Committee highlighted the government’s expectation of a significant reduction in the tax gap over the forecast period. Marks said: “If we look at the tax gap, the Office for Budget Responsibility (OBR) shows an illustrative scenario… of that falling… Taken together, the tax gap packages make up about £10 billion of additional tax revenue.”

When pressed about the realism of these projections, he acknowledged the ambitious scope and stated “We are clear that we have a very stretching transformation ahead of us”.

Athow addressed offshore tax risks and highlighted that HMRC “do not have an overall freestanding estimate of the offshore tax gap… It is implicitly included within our overall estimate of the tax gap, but is not separated out.”

On the new high‑value council tax surcharge, Jonathan Russell detailed the scale of the Valuation Office Agency (VOA) valuation work, explaining “currently, we value something in the region of 28 million properties for council tax banding… We already have the basic valuation… which was done in 1991.” He outlined the expected scope and said: “The estimate is that there will be about 150,000 to 200,000 properties in scope… the banding starts at £2 million.” Regarding pubs and hospitality valuations for business rates, Russell confirmed that: “On average the rateable value has gone up by 32%… about 5,100 pubs have seen their rateable value doubled.”

On the changes to the government’s IHT proposals, Athow told the MPs that: “It is relatively straightforward for us to administer and to model” as “it was a change in parameter to an existing policy”.

On HMRC security and cyber threats, Marks updated MPs on the PAYE criminal attack disclosed previously saying: “The loss… was just under £49 million… the final outturn was £57 million… Arrests were made… We have now established the fraud prevention centre.” He added: “We are very alive to the use of AI to abuse the tax system… we are developing… AI principles that we expect providers of accounting or tax software to abide by.”

Asked about an update on online marketplaces that offer to help collect VAT, Athow explained that under the current rules, it is for the online marketplace to identify whether the company is UK-resident: “That is a better way of doing it than relying on HMRC, because the online marketplace has a relationship with that company”.

The Committee also asked about HMRC’s removal of child benefit eligibility from thousands of taxpayers. This has been done on the basis of travel data. HMRC had removed checks against PAYE systems from the suspension process, an MP suggested. Marks responded: “The PAYE check that was originally in the up-front risk rule was moved to the end of the customer journey, at the point of whether there was a considerative decision, rather than up front. That was done to streamline the process at an operational level”. He suggested that the effect of that was not what was ‘intended’, and “we have put it back and corrected the cases”.

This report is based on the transcript of the session which can be read here. Please note that this is an uncorrected transcript and neither MPs nor witnesses had at the time of writing had the opportunity to correct the record so it may be subject to change. The drafting of this report was assisted by an LLM tool but it has been checked, edited and supplemented by CIOT's External Relations Team.