LIVEBLOG: Treasury Committee questions HMRC

A report on this session will be added here after the transcript has been published.

For now, the liveblog follows. 

You can watch the session here.

You can read a letter written to the committee by HMRC answering questions ahead of the session here. 

Liveblog

2.15pm While we wait for the session to start, it's worth noting that we have some new committee members since the last time we blogged, and a new chair, following the appointment of the previous chair, Mel Stride, as Work and Pensions Secretary.

The chair is Conservative MP Harriett Baldwin. The other members are: Rushanara Ali MP (Lab), John Baron MP (Con), Anthony Browne MP (Con), Dame Angela Eagle MP (Lab), Emma Hardy MP (Lab), Danny Kruger MP (Con), Andrea Leadsom MP (Con), Siobhain McDonagh MP (Lab), Anne Marie Morris MP (Con), Alison Thewliss MP (SNP).

2.23pm We are still waiting for the chair to get the session underway. The committee witnesses are: Jim Harra, Chief Executive and First Permanent Secretary, HMRC; Angela MacDonald, Deputy Chief Executive and Second Permanent Secretary, HMRC; Jonathan Athow, Director General for Customer Strategy and Tax Design, HMRC.

2.25pm The chair opens the session with a request for an update on HMRC fraud and error recovery under covid support schemes. £4.5 bn of error and fraud across the three schemes says Harra, down on prior estimates. They expect to recover a quarter of that. He sets out some of the recovery work HMRC are carrying out.

The chair points Harra said they would recover £2bn at a previous hearing. Current estimates are down on that. Harra says the estimate of the amount of fraud and error is down - more cases, smaller amounts.

2.30pm The chair asks Jim Harra to elaborate on how HMRC are going about recovering the money. Harra talks about some of the measures that were taken to stop abuse, including preventing money getting to criminal gangs. 'Virtually zero' was lost to criminal gangs. Gives example of a haulage firm who claimed furlough for drivers who were working. They accessed their tachograph data to prove this. 

2.34pm Would you do anything differently if it happened again, asks chair. Key is data says Harra. The more data we can get about people's incomes the more accurate we can be. Cohorts excluded from SEISS could have been included with better data.

2.36pm Chair turns to crypto, on which the committee is carrying out an inquiry. Is it being used to dodge taxes? Do HMRC have enough expertise? Harra replies that HMRC probably has most extensive guidance of any tax authority on how cryptoassets are treated. But this is a fast developing market and we keep really close contact with the industry. There is no doubt they are an asset class (as is cash) used to hide from HMRC. 

2.39pm Angela Eagle asks about 'eat out to help out' fraud. Harra gives example of a restaurant claiming to have a record month on sales for eat out to help out while furloughing all their staff. Some businesses very careless, he and Eagle agree. Arrests prompted voluntary disclosures from other restaurants. It was a smaller scheme so although a higher proportion was fraudulent (9.5% estimated) it was a smaller amount than CJRS or SEISS. 

2.41pm Discussion turns to wider compliance issues and the rate of return on compliance spending. 18-1 on existing spend says Harra but that wouldn't be marginal benefit of further spend.

HMRC's Customer Compliance Group has a section focusing on the wealthy. 'Man marking' for the very wealthy, looking at how they manage their money, etc. Small and medium sized business kept with that group because often they are owner managed.

2.44pm Eagle asks about R&D relief fraud. Jonathan Athow says reforms designed to rebalance the schemes and also in response to abuse of SME scheme.

How are you dealing with yo-yo-ing approach to policy, asks Eagle. Athow replies that SDLT is only area where there have been issues where it took time to get guidance published. Harra adds changes to NI - two in-year changes, had to allow enough time for payroll to cope. Evidence is most employers have succeeded in implementing in payroll at the correct time.

2.47pm How can uncertainty be dealt with, asks Eagle. Were you kept informed about Mini-Budget in advance?  Harra: we were involved in all the announcements on the day and in determining when they could be introduced.

2.50pm Siobhan McDonagh picks up the questioning, asking about non-doms and what help HMRC are providing to independent researchers looking at HMRC data. Athow says HMRC make this data available. We are merely the data providers.

McDonagh asks if HMRC will engage with the researchers. We will monitor all evaluation, says Athow. Impact of changes to non-dom regime less certain than some other tax changes, says Athow. 

2.52pm McDonagh asks about corporate part of tax gap. Athow says underlying yield in 2021 fell due to changes in regime in 2019. Less profits meant percentage of tax gap rose. Technical change brought £9bn forward into 2020 made tax gap artificially low then artificially high adds Harra.

2.54pm Do you expect to see tax gap falling this year, asks McDonagh. Very hard to say, says Athow. More card payments suggests might fall, but people drinking more at home could push you in other direction.

2.55pm Excise tax gap. Athow says to McDonagh that it is harder for HMRC to police the off trade rather than the on trade (pubs etc.) so a shift in drinking habits to the off-trade means a higher tax gap. 

2.57pm Has Brexit made it harder to tackle smuggling, asks McDonagh. It's changed what we do, says Harra. We've had to replace old data flows with new ones.

3pm Number of complaints over tax repayment companies has more than tripled in two years. Why? Macdonald says there are issues around awareness that you can claim direct to HMRC. The challenge is these are done by way of assignment, Macdonald continues. It some instances that customer may not be aware they have made that step. We have been looking at all the practices of HVRAs, including whether they breach advertising standards. We have challenged assignments we don't think are legal. We have repaid 40,000 customers of Tax Credits Ltd where we didn't regard assignments as legal.

There is a positive service from some agents, but also unscrupulous people who take advantage of customers and we are intervening to address this, says Macdonald.

3.02pm John Baron asks why HMRC has done better at tackling avoidance than evasion, on tax gap figures. Harra says around the time of the financial crisis HMRC took concerted effort, especially against banks, and we have seen a real drop off. A small number of stubborn promoters still in existence in avoidance. Estimated 31,000 people involved in such schemes last year. He lists some of the things HMRC are doing to make life difficult for these promoters and deter people from using them.

On evasion, broadly it is small businesses not declaring all their income, says Harra. Cash makes this easier. Harder to do as we move away from cash transactions. Market largely unchanged. Challenging for us to get good rate of return on investment in compliance here. MTD intended to drive out error by small business, enabling HMRC to focus effort on deliberate behaviour. 

3.07pm Baron continues on evasion. Why isn't the government committing more to compliance? Even one to four would be very good rate of return. Harra says successive governments have invested in HMRC to tackle avoidance and evasion. Significant chunk of the £79m announced in Autumn Statement will go to tackling evasion.

If more money was invested we could get much more back, asks Baron. Should we create incentives by letting HMRC keep money? Harra says we have this to small extent regarding proceeds of crime. It is a potential model but not the one HMT follow. Athow talks about tax checks process for licences for certain businesses. You wouldn't want to create perverse incentives by making it better to let evasion happen and then recover it, rather than preventing it from happening in the first place.

3.12pm Emma Hardy takes over the questioning. DWP got £280m to tackle fraud, HMRC got £79m. What would be return on £280m if you got funded in same way? Hard to tell, says Harra. At what point does investment in tax gap have a return, asks Hardy. We don't have figures for where you would reach a break even point, and HMT would want to see a multiple rate of return anyway, says Harra. DWP has c8,000 staff working on benefits error and fraud, HMRC says about £28,000.

3.15pm Hardy continues with comparison of DWP and HMRC approaches. Harra says HMRC in practice is quite selective in how it seeks criminal investigation. Generally focused at top end of evasion. In the past we have had volume targets but now try to focus resource. Can have swingeing financial penalties and asset confiscation without criminal charges. Deliberate Defaulters list - publish names of deliberate defaulters.

3.18pm Hardy raises FT article saying AML Tax Ltd was fined for failing to hand over records in relation to aggressive promotion of avoidance schemes. She says this is a firm run by Doug Barrowman, husband of Baroness Mone. Harra says AML is among the small number of hardline promoters of avoidance whose schemes aren't very good, won't succeed so they throw every legal resource into stopping them getting into court. He believes they were involved in schemes to which loan charge applies.

Disguised remuneration schemes - Harra tells the committee c20,200 cases settled for £3.4bn since 2016. 80% of that from employers, 20% from users. Promoters not liable. They are liable for penalties. We awarded a penalty of £1m to a promoter recently.

Would you like to see changes to enable more aggressive pursuit of people promoting these schemes, asks Hardy. Harra says we have had powers given to us in relation to promoters. Sped up ability to name and act against promoters.

3.24pm Health workers and others who use cars for work. Mileage rates don't cover cost at pumps. Are those rates going to be revised to reflect price of fuel? Athow says mileage rate covers petrol and depreciation. Two thirds of cost is depreciation rather than fuel. Our mileage rates are advisory, but it does have tax consequences. Ministers keep this under review, he adds, and any decision on rates would be theirs.

3.25pm The division bell rings for a series of votes in the House of Commons. There could be up to four says the chair, so the committee is being adjourned for up to 45 minutes.

4.15pm The session resumes with Andrea Leadsom questioning. She asks about expected debt balance in 2023. We are seeing lots of non-payment, says Jim Harra. I don't believe we will be able to bring it down in this financial year, he says. That is a consequence of high level of indebtedness among small business.

Leadsom asks about time to pay arrangements. These have been streamlined, says Harra. You can do it online. The number of TTP arrangements has reduced slightly since end of pandemic but still c850K in place. Very high successful completion rates - c90%.

4.19pm We all have constituents who say 'HMRC never answer the phone' says Leadsom. What are you doing about it? Call waiting times c14 minutes on average across all helplines at the moment, says Harra. People who need to get in touch with us can. Angela Macdonald says many customers getting in touch could be using digital services instead. Don't sit and ring, see if you can self-serve first, she says.

Leadsom asks about HMRC people working from home. Macdonald says home working is only where it's suitable to the job. Leadsom links working from home with call delays. 

4.23pm Another division bell means another break - this time for third reading of the Finance Bill

4.34pm Committee resumes. Leadsom asks about call delays again, and people told 'we may investigate you, and left to stew for a year or more' , especially in relation to the loan charge. There are plenty of people who think HMRC isn't doing its job efficiently, she says.

Macdonald says pandemic-related activity hit service levels elsewhere. HMRC working hard on backlog. Plan was by last March down to normal head of work - c2 million items (month worth of intake). That's where we were. Phone service is high 70s, 80s answered. Acknowledges that 20% is still a lot of customers not to be getting through.  WFH expenses - 571,000 submitted over 3 month period. Much more than expected.

4.37pm Leadsom continues on link between poor service / delays and loan charge case where HMRC 'might investigate'. Harra says it has been the case we would often open an enquiry, select a lead case, work that and other cases would follow behind it. In those days that meant there was not effective comms with people waiting.   

4.40pm What do you say to people waiting over a year, and to those who link this to loan charge suicides, asks Leadsom. Harra says follower cases are contacted once a year minimum. We have introductory pack we send to people when we open an enquiry, describing process. Also describes extra support provision. Being under investigation and prospect of big bill both stressful. Officers trained to identify vulnerable. Last year 110,000 taxpayers dealt with by extra support team. Work with Samaritans too. Describes procedures where HMRC think there may have been link to a death.

4.43pm Danny Kruger takes over the questioning, focusing on Making Tax Digital. How has it gone so far? Macdonald says it has rolled out very effectively. £115mn raised in 2019-20 as a direct result of the implementation. Many businesses very enthusiastic though not all. Many voluntarily do MTD.

Kruger notes Vat Practitioners Group description of it as creating havoc. Macdonald says HMRC work closely with practitioners and work hard to take feedback into account. I would not recognise that characterisation, she says.

Are you aware of concerns over treatment of taxpayers from abroad, asks Kruger. Security one of our biggest concerns, says Macdonald. We don't yet have really good quality way to validate people coming from international IP addresses. This is not acceptable, but solving it is complicated.

For switch to MTD ITSA concerned about readiness, asks Kruger. Harra says key is to make sure there are plenty of suitable software products, and we leave enough time for advisers to support their clients. Want to give as much time as possible to test process live. We monitor readiness and keep it under review. Ministers are keenly interested. Important we do it quickly but also important we do it well. 

4.49pm Kruger asks about automation of Gift Aid. Concern that charities lose out in unclaimed Gift Aid. Harra says he can't update the committee on this and will have to write to them.

Can we streamline charity tax, asks Kruger. Athow says the charity sector is very diverse.

4.51pm Alison Thewliss's turn now. She asks about the HMRC Charter. This suggests public losing some faith in HMRC, she says. Does HMRC need to do more to restore faith? Macdonald says the results of this year's survey put us back to 2019 levels. People loved us more when we were paying money out and have now returned to previous position, she suggests. But important people have trust in tax system. Tackling unscrupulous people in tax ecosystem, helping people get digital services, among the ways we can tackle. Acknowledges delays an issue for agents especially.  

Thewliss notes ICAEW concerns over delayed repayments. Macdonald says big issues with repayments is protection from fraud. In July 2022 HMRC can under significant attack from VAT fraud. Had to pull down the system, work through thousands of cases, and genuine businesses got caught up in this. We work hard to be as open and transparent as we can, inc with rep bodies. 

Thewliss cites the problems faced by her constituents where things took a long time to resolve. Those are not good enough, says Macdonald. Are there sanctions for not meeting objectives, asks Thewliss. One of our non-execs writes an annual report on the charter each year. Takes evidence from rep bodies. We are transparent on the views people express but not financial penalty.

4.58pm Guidance on CGT and IR35 reforms delays. Athow says with CGT HMRC put out standard guidance, thought that would be sufficient, but not detailed enough. Should have acted more quickly. On IR35 HMRC put out guidance on 2017 public sector changes too close to implementation. Brought forward for private sector changes in 2021 and published sooner. We have 100,000 separate webpages so there is a large estate to manage. We have a new guidance forum to identify issues.

5.01pm Reasonable to expect ordinary taxpayers to wade through TIINs and draft legislation, asks Thewliss. Athow says there is an ecosystem, with agents involved too. In retrospect we should have put out more detailed information. Some of our changes are straightforward, sometimes ongoing legal proceedings prevent update of guidance. 

5.03pm Scottish Government and policy community need access to best info. At the moment tax data are only available for in person analysis in a room in London. Athow acknowledges value of data, stresses need for controlled access. We are looking at different models - virtual datalab - where people access from secure location not in London. There are options. Scottish Fiscal Commission have to come down to London and sit in the room, as OBR do.

5.06pm Rushanara Ali takes the lead. She begins by asking about fraud and Lord Agnew's claims that the Government's approach was inadequate. How much fraud is recoverable? £4.5 bn is latest estimate of fraud, says Harra, and £1.1 bn is latest estimate of what we will recover, across three schemes.

Ali wonders whether winding up special recovery task force will reduce the amount recovered. Why not retain the task force? Public are telling us: go after the money fraudsters have made. Harra agrees. He says HMRC are clear that the rate of return from the task force will diminish over time and it is better to redeploy the resources to reducing other parts of the tax gap.

5.13pm Ali goes onto some questions about borders. Harra had said he was keen to see no disruption at the border. How had it gone? Harra said there had been a lot of change for traders to take on board.

Have some of the issues been resolved because people aren't exporting, asks Ali. Harra says some statistics have been quoted misleadingly. But no doubt traders are now having to deal with customs procedures they weren't having to deal with previously. Admin cost - last estimate £55 per declaration. Millions of them.

5.18pm The chair asks about a payment made by Uber to HMRC following a court ruling. We have settled a long running enquiry with Uber says Harra and have got the tax due under the law.

Can the public feel confident these innovative tech firms are paying their fair share of tax in the UK, asks Baldwin. Harra says by their nature these firms are disruptive, creating new tax risks. With Uber it was application of 'bog standard VAT rules' to innovative business. Athow adds to this reply, mentioning Diverted Profits Tax and Digital Services Tax, as well as the two pillars of OECD's Inclusive Framework.   

5.21pm The chair thanks HMRC for their evidence and closes the session.