Treasury Committee question HMRC on SA helpline closure, tax gap and simplification

Giving evidence to the House of Commons Treasury Committee on Wednesday 18 October, chief executive Jim Harra said the pilot had achieved some of its aims around reducing demand for phone services in favour of online services such as webchats, but warned this would need to become the norm if HMRC is to meet its service standards in the future.

Harra was joined at the committee by Second Permanent Secretary Angela MacDonald and lead non-executive and board member Dame Jayne-Anne Gadhia. When asked by committee chair Harriet Baldwin whether the helpline closure “didn’t seem to work”, he said that despite the demand for the alternative online services helpline during the closure exceeding expectations at first, many customers were successfully diverted from phone lines to online platforms.

Harra said that as customer contacts increase and HMRC resourcing goes down, “we are not resourced to deliver customer service standards through traditional phone and post channels.” He said customer demand would need to reduce by 30% for HMRC to meet its standards with reduced resourcing in the future.

Questioned over the communication of the helpline’s closure, which saw customers informed just two days before the line was shut, MacDonald conceded that the communications plan took “some time to develop”, meaning customers were informed later than planned, but it “definitely was not part of the plan”.

Gadhia said HMRC “knew in April” that it would be focusing on digital platforms over the summer, while Harra said the pilot needed to begin when it did as, had it been a failure, it would have allowed extra time for problems to be resolved ahead of the paper returns deadline on 31 October.

MacDonald agreed that the pilot had increased the number of customers using digital platforms, but since the helpline reopened, the “tide has moved back” and more are again using the phone. She said action will need to be taken to “encourage” more to use digital.

She also confirmed that, while analysis of the results of the closure is still taking place, HMRC is in the early stages of planning a second pilot. “We absolutely believe a shift to the usage of digital services is and has to be part of the HMRC operating model,” she said.

Tax gap and Covid fraud

Dame Andrea Leadsom asked why the tax gap has increased by £5 billion since last year, with Gadhia saying that while the numerical figure has increased, as a percentage of the total tax owed it has remained steady at just under 5%.

Harra acknowledged while the target of government is to see the tax gap reduced each year, it has come down to a record low as a percentage, which has been sustained in recent years.

He added that an estimated £5 billion has been lost in error and fraud to three government schemes during COVID, of which just over £1 billion has been so far recovered. Asked by the committee what HMRC would be doing to recover the rest, he said a lot of that was error rather than fraud, and there would be “diminishing returns” moving forward. The special taskforce set up to pursue Covid scheme fraud has now been wound up and this work has been wrapped into HMRC’s other compliance work. HMRC had determined that the returns from pursuing this fraud were now lower than those for pursuing tax non-compliance.

Likewise, Harra said small business error is growing as a percentage of the tax gap, which is why schemes like Making Tax Digital have been introduced to help taxpayers correctly fill in their returns and avoid genuine mistakes.

Staff engagement and homeworking

Baldwin mentioned that HMRC is ranked 84^th out of 106 civil service departments for staff engagement, asking whether this raised concerns. Harra said recent years have seen a “significant increase” in engagement, while Gadhia added that she often uses sick leave as a useful measure. She said while last year this was a “particular problem”, it was improving.

Harra said the majority of HMRC staff work from home “part of the week” and the productivity levels of “proficient staff” are roughly the same regardless of whether they work at home or in the office. He added that new recruits or those moved to different teams “learn faster” in the office, so HMRC encourages office working in those situations.

Harra also confirmed that staff will be offered the chance to work longer hours in winter and shorter hours in summer in a pilot next year to address seasonal changes in demand. The limited numbers of those who take part in this trial will also receive a 1% pay rise.

Simplification

Harra assured the committee that HMRC “wants tax to be simpler”, while the Chancellor has instructed that simplification be built in to all new tax policy. Questioned by John Baron on the lengthening tax code, he said that most taxpayers interact with HMRC systems rather than the legislation itself, so that’s what has to be made “as simple as possible”. MacDonald agreed that complexity often came from multiple forms and complicated language rather than the tax code itself.

Harra added that for the majority of taxpayers, who use PAYE, the tax system is simple, but HMRC is looking at building compliance into more complicated areas such as small business.

R&D reliefs and avoidance promoters

Baldwin asked what lessons have been learned from rocketing levels of R&D error and fraud, rising from £336 million to £1.13 billion. Harra said HMRC has “clearly underestimated” this in the past. He added: “This is a very generous tax relief because it’s intended to incentivise R&D, but that makes it a honeypot to those for whom it’s not intended.”

Harra added that some advisers submit claims for their clients which are not compliant and HMRC is working with advisers’ professional bodies to address this.

He said HMRC is taking action against the promoters of tax avoidance schemes if they are found to have committed fraud, with 20 such cases in recent years. He added that stop notices can only be issued against schemes rather than promoters themselves, and while HMRC has had success in this area, there is still a “core” of promoters who remain active.

Watch the full session.