Treasury Committee quizzes tax minister on helpline closure, MTD, simplification and tax reliefs

HMRC’s self-assessment helpline closure

The Chair of the Treasury Committee, Harriet Baldwin (Con), opened the debate by raising concerns over the recent announcement by HMRC of the closure of the self-assessment helpline. These followed-up a letter that the committee has written on this topic to HMRC’s Deputy Chief Executive, Angela MacDonald.

The letter, sent on 13 June, poses a series of questions for HMRC:

• how many people use the helpline
• whether HMRC consulted with any external body prior to the trial
• what data will be collected from the trial and how HMRC will evaluate it
• what monitoring will take place after the trial to assess whether calls have been displaced from the closure months into later months when the helpline is reopened
• what procedures are in place to assist vulnerable taxpayers and those unable or unwilling to use digital services
• what contingency arrangements HMRC has in place should taxpayer detriment be greater than expected during the trial
• whether the closure of the helpline is related to HMRC’s homeworking policy
• whether the closure of the helpline has been introduced because of staffing issues in HMRC or backlogs/issues in other areas

Answering Baldwin’s questions in the hearing, the Financial Secretary acknowledged the concerns of the committee, conceding that “our customer services levels across HMRC have not been as they should be”. She explained that she has been working with HMRC officials to find ways to support customer service teams during high demand periods. Atkins explained that this is a “quiet quarter” for the self-assessment helpline and therefore the line has been temporarily shut to allow those employees who have been managing this service to help out other lines that see much higher demand.

Baldwin replied that the self-assessment helpline would now be “absolutely silent because no one has a chance to get through”.

Atkins, defending her remarks, said many self-assessment queries at this time of the year could be dealt with through online services, and that’s what ‘everyone’, including banks, are trying to do: “move customer services online when it’s appropriate”. “We are trying to use our people as effectively as possible”, she added.

The minister confirmed that the helpline will reopen again on 4 September as self-assessment deadline approaches and the Treasury will be watching this approach very carefully to see if it’s beneficial.

Baldwin highlighted that the Treasury has not given taxpayers much notice prior to the closure. Atkins reiterated that “this is a pilot” and the Treasury is trying to find the best ways to improve HMRC’s customer services.

HMRC’s customer service is “really a mess” said Baldwin, noting the bad feedback it has received from taxpayers. Atkins said she understood that people would like to receive better services and she is looking into all methods to improve these services.

Making Tax Digital

The Chair of the committee, Harriett Baldwin, also highlighted the National Audit Office’s report, published earlier in the week, Progress with Making Tax Digital (MTD). This report said that MTD is now expected to cost around five times its original 2016 budget and that HMRC had excluded upfront costs of £1.5 billion to VAT and Self-Assessment customers from its business cases.

Baldwin observed that one of the Financial Secretary’s initial decisions after her appointment was to pause MTD. She asked the Financial Secretary to provide her thoughts on this matter.

“We want this programme to work well for customers”, Atkins answered. She pointed out that this is an enormous transformation project that requires millions of people to move towards conducting their taxes digitally. She had to delay mandation of the programme until 2026 because the Treasury would like to pilot it properly and listen to stakeholders to ensure their expertise has been embedded in the design of the programme.

Atkins hoped that ahead of 2026, the programme is at the stage where taxpayers volunteer to sign up for it because it’s a much easier system to use.

Baldwin noted the Chancellor’s recent remarks about taking the initiative across the whole public sector to improve productivity and said: “do you accept that until HMRC get their house in an order, it will be hard for the Treasury to be lecturing other departments”.

Atkins stressed that HMRC has a big role in the government’s productivity and MTD is a big part of it.

Closure of Office of Tax Simplification (OTS)

Harriett Baldwin also led the questioning on tax simplification.

“The Chancellor accepts that the tax codes are simply too complicated”, Baldwin observed, yet following the previous Chancellor’s decision to abolish the OTS, the government is going ahead with it. “You’ll have seen that this committee opposes that. How can you possibly sit here and say that we don’t need to simplify these tax reliefs quite extensively?”.

The Financial Secretary responded that the Chancellor, Jeremy Hunt, has taken the decision to abolish the OTS because (and, she added, when she came into the department she could see that), if an external, arms-length body is responsible for assessing the government’s needs in terms of simplification, there is “a real risk that that is divested – people think the OTS will deal with that”. She assured the committee that ministers would like to bring this matter “right back to the heart of the Treasury”.

When she joined the Treasury, said Atkins, she asked all officials to judge every single tax policy by three criteria: making tax fairer, making tax simpler and making tax supportive of growth: "Every single proposal I receive, officials have to mark on those three criteria how this policy [them].” She acknowledged there is a tension between making taxes simpler and making taxes fairer. This was not a tension the OTS could advise upon, she argued.

“We believe that putting responsibility for simplicity back on ministers’ shoulders is actually the right way to make policy”, Atkins added.

She acknowledged that it was ‘a fair challenge’ from the committee how government would be held to account and how Parliament would measure how the Treasury is achieving simplification. She said she has commissioned officials to work out some metrics on how the Treasury will do this. “It’s a very, very complicated process but I hope at some stage in the next few months I will be coming back to you and the House with some suggestions as to how we can do that.”

Concluding this section of the hearing, the minister said the committee should not forget that, “at every single fiscal event, if there is a debate or a Finance Bill, again, the House can scrutinise those tax measures. And I have no doubt that colleagues will be holding me to account at the despatch box when it comes to simplification matters.”

(NB. The committee published a short report on Tax Simplification two days after the hearing, on Friday 16 June. This called for the government to report to it annually on progress towards simplifying the tax system. Members of the committee, led by the chair, Harriett Baldwin, have tabled an amendment (amendment 7) to the Finance Bill seeking to delete the clause abolishing the OTS, and another (new clause 2) seeking to require the Treasury to report annually to the committee on tax simplification should the OTS be abolished.)

(NB. Content to this point was published 16 June. Content below this point was added on 23 June.)

Tax reliefs – entrepreneurs and venture capital

The bulk of the session, however, was spent questioning the ministers and officials on tax reliefs, as part of the committee’s ongoing inquiry into this area.

This began with some questions for Andrew Griffith, Economic Secretary, on reliefs targeting entrepreneurs and venture capital investors. Harriett Baldwin (Con) invited the minister to share his thoughts on reliefs in this area, asking if there are any changes he is keen to make.

Griffith replied that the current schemes (Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCT) and Seed Enterprise Investment Scheme (SEIS)) “work well for the British economy, and they work well for taxpayers’ fairness”. He added that these schemes have spawned large amounts of capital that have gone into early stage. For instance, the EIS has mobilised £40 billion of investment into growth companies which has been supportive of the economy.

John Baron (Con) expressed his concern about the extension of the sunset clause of the EIS and VCT, noting that there has been no sense of timeline about this on the Finance Bill. He argued that while 2025 might sound a very long time, business need more certainty.

Griffith answered that it is the nature of these sort of schemes to run for a period of time. The government have made modifications, he said, which have all been in a progressive direction to make them more workable. He continued that these schemes are “finely attuned to the needs of what founders, entrepreneurs and investors are looking at”.

Baron quizzed the minister, saying, “you are going to extend it… just not going to tell us for how long yet”. In response, Griffith said that he couldn’t go beyond what the Chancellor has announced so far.

Later, Dame Angela Eagle (Lab) enquired if the Treasury should change the rules of venture capital tax relief to require open reporting about who is receiving funding, in other words, to make things more transparent.

The Economic Secretary claimed that these sort of data have already been collected, and said: “I think those reports are talking about the overall magnitude of venture capital investment in the sector. That suggests that it is not just the small subset of tax relief; it is the much broader pattern of institutional and private capital, and there is always a balance to be struck”.

The committee also questioned the government representatives about non-tax issues relating to venture capital, as the committee is also running an inquiry into this area. These are outside the scope of this report.

Tax reliefs – simplification and sunset clauses

Highlighting the complexity of the tax code, Baron argued that the current system is not good for economic growth or productivity and wondered what the government is actively doing to put this right when it comes to simplification.

Victoria Atkins, the Financial Secretary, said that while simplification is vital, it is not the only factor when it comes to encouraging growth and productivity. She provided an example of the full expensing scheme, which has encouraged businesses to invest in the UK economy, mentioning that these sort of tax reliefs could help productivity and growth.

Baron, disappointed with the Financial Secretary’s response, suggested all tax reliefs should be introduced “with a measurable aim so that you can assess their effectiveness”. He also asked why the government has not considered making better use of sunset clauses to ensure new taxes that the government introduce remain in focus.

Atkins gave a couple of examples of the impact of reliefs, telling Baron that “only this week PepsiCo has announced its largest investment in a very long time in the UK, and it attributes that decision to the full expensing policy”. She reiterated that the government will make full expensing permanent “as soon as we assess it fiscally responsible to do so”. She highlighted Brompton Bikes as a company she had visited recently which had made good use of the super-deduction.

Responding to Baron’s criticism of the length of the tax code, Atkins argued that the code’s length was not the best metric when it comes to achieving tax simplification. She added that one of the UK’s advantages over other developed economies is the annual fiscal events, where the government has “the opportunity to look across the board at taxes, gaps, loopholes and, importantly, reliefs”. She gave entrepreneurs’ relief as an example of a relief which had been reviewed and reformed, and social investment tax relief as an example of one which had been allowed to lapse.

Baron felt that his question about the complexity of the tax code acting as a hindrance had still not been answered by Atkins and said: “I hope HMRC and the Treasury are not in denial about the fact that too much complexity actually clogs the system up”.  He added that the tax system/code “has doubled every 15 years, roughly” and industries are struggling despite all the good reliefs that have been introduced by the government.

The Financial Secretary identified the cash basis for the smallest of businesses as ‘a massive simplification exercise’ and said that she very much would like to make the tax system simpler, and this is part of her three criteria that she spoke about at the start of the session.

In relation to Baron’s question about sunset clauses, the Economic Secretary stressed that (not specific to tax and HMRC) he fully supports the idea of ‘bearing down on the tendency of the arteries to become clogged and for the corpus, whether of legislation or regulation, to increase over time”. To said time-delineated regimes were one way of responding to this. Others included placing a duty on regulators to promote growth and competitiveness, and ‘beefing up’ the role of cost-benefit analysis.

Adding to the conversation, Atkins said that the government look to use sunset clauses where they can, but said that it would not be a good idea to, for example, place one on the VAT exemption on food, which would frighten people. She said HMRC had conducted 26 evaluations of reliefs since 2011.

Tax reliefs – policy design

Danny Kruger (Con) asked the panel about the process of designing and introducing reliefs, pointing out that current fiscal events are secretive, with the Treasury designing changes privately without consulting with the sector, and announcing it on the day. He wondered whether the process could be improved.

Atkins noted that some parts of policy making cannot be shared with other people ahead of Budget Day. However on Legislation Day this summer, the government would publish the draft legislation that they are planning or producing over the next few months. This would provide an opportunity for others to feed in.

Helen Dickinson, Director of Business and International Tax at the Treasury, added that while the government may announce certain tax changes without publicly consulting, they will then consult on the detailed legislation that they will use to bring it into effect. In particular, Treasury officials seek expert advice in the case of tax reliefs. 

Kruger acknowledged the difficulties of making policy ‘in the open’ and asked the government to keep an open mind about policy decisions that have already been made (including social investment). Atkins responded that the government does not always have the best tools to reach 60 million people and agreed that getting the message out and communicating with people is essential. For example, she added, the Treasury has worked very closely across all sectors, particularly with small businesses that are R&D intensive, to find ways to ensure tax reliefs are targeted and reach the businesses that are in need the most.

Angela Eagle quizzed the Financial Secretary about her ‘criteria’ (fairer, simpler, supporting growth), saying that: “supporting growth can actually be about mobilising some of the tax receipts you have managed to get in, rather than minimising the tax receipts you get in”.

Atkins answered that she has imposed these criteria, and officials are using them too, although she acknowledged that often there is a tension between the ‘fairer’ and ‘simpler’ measures. She provided an example that for smaller businesses or businesses that have not quite reached their full profit potential, it is not right that they are hit with a 25 per cent corporation tax on profits of less than £50,000. As a result, the government has tapered it, to make it fairer, although this might not mean simpler.

Returning to policy design issues later in the session, Anne-Marie Morris (Con) asked about the criteria the Treasury applies when looking at new reliefs. Dickinson said that they have a design checklist of questions which includes what the policy objective is that the government aims to achieve with the relief, as well as the potential unintended consequences. The Treasury work with HMRC, in particular, regarding the costing, analysis and potential risks of reliefs. The chair asked to see the checklist and Dickinson said she would write to her.

Morris also raised concerns about microbusiness and how government ensures that they are not disproportionately burdened.

Dickinson emphasised that the Treasury always considers the distribution of the effects of any changes in tax, including examining the numbers of businesses that might be affected in different ways. “For example, in the main corporation tax regime I think 70 per cent of our businesses pay the small business corporation tax rate of 19 per cent rather than the main rate of 25 per cent. That is the sort of thing that we would want to look at in designing reliefs”.

Morris asked the Financial Secretary whether cliff edges should be reviewed at each fiscal event or at least once a year. Atkins reiterated that with each fiscal event, the Treasury genuinely ‘look across the board’ at where threshold are set.

Tax reliefs – avoidance, fraud and other abuse

Eagle posed another question to the minister, this time asking if she thought tax relief, specifically non-dom relief, is vulnerable to abuse. Atkins replied that the House has recently scrutinised this policy, stating that as well as changes in 2017 the current Finance Bill closes a loophole in this area, which would result in £830 million of extra revenue for the Treasury.

Atkins declined to agree with Eagle that there had been abuse in the non-dom area, stressing the importance of the UK welcoming highly skilled and highly paid people, saying that last year the Treasury received £7.9 billion in tax receipts from the non-domiciled taxpayer community.

Turning to research and development (R&D) relief, Eagle said there had been £1.1 billion in fraud and error over the last three years. She noted that the committee had taken evidence from Alex Dunnagan at Tax Watch, who suggested this was a result of “boundary pushing”, in other words, advisers and accountants suggesting that companies put in what they know are borderline claims. What have you done about that, asked Eagle.

Atkins said that the government has accepted the National Audit Office’s advice in this matter and they are keen to decrease the figures. The NAO “advised that we should take a very careful look at a group of cases. We have just finished that. We are reviewing the evidence, and that will be published in July as part of our annual accounts.” She added that the government is introducing practical measures in the Finance Bill to close problems in the SME scheme.

Eagle raised concerns about fraudulent practices facilitated by tax advisers or agents and questioned the punishment for those involved in such exploitation.

Atkins explained the measures in the current Finance Bill, including requiring senior officer sign-off for applications, stopping the unknowing assignment of rights to agents. She continued that HMRC has also been cracking down on agents involved in boundary-pushing practices, and they have started publicising ‘stop notices’ against such agents. Furthermore, the Finance Bill includes practical measures such as digital delivery of claims, providing a clear evidential trail, and requiring detailed information and prior notification to HMRC for future claims, including the involvement of agents.

"If you saw a pattern of bad agent behaviour in one instance, what could be done to deal with it?” asked Eagle. Atkins said that criminal offences are available, although this is a complex matter. Sometimes an agent might be pushing the boundary without crossing the line, she said, and this is not a criminal offence.

Eagle also asked why the government had taken so long to act on abuse by umbrella companies. Atkins said she would write to the committee on this.

Highlighting the recent Public Accounts Committee report which had pointed out increasing levels of fraud, Rushanara Ali (Lab) asked whether gradual removal of resources and expertise from HMRC could be a factor.

The Financial Secretary responded that HMRC is always under attack, and the Treasury is trying to guard against fraudsters who try to commit crimes. She said that the OTS had not had a role in crime fighting, and that Treasury officials have the capacity to take on its role.

Use of arms-length bodies by government

Returning to the topic of the OTS, Ali noted that ministers had said the risk with independent bodies of this kind is that it might lead to ministers being less engaged. “From that logic, it follows that other agencies [such as the Office of Budget Responsibility] should be brought in-house as well, does it not?”

The Financial Secretary replied that she did not see the OBR and other bodies as being directly comparable to the OTS. “The Office for Budget Responsibility has a very, very important role, not in advising us but in holding ministers to account,” she said. However, “as a Conservative, I think we should always be looking at arm’s length bodies and asking ourselves whether they meet the criteria that we as taxpayers expect and what they deliver.”

Tax reliefs – costs and distortions

Ali turned to the costs of tax reliefs and monitoring of them.

Atkins noted that the Treasury has costed 252 of the non-structural reliefs after the May 2023 release. However, this does not include all reliefs as there is insufficient information available on some. For instance, she argued that if an individual takes an advantage of the personal allowance, the Treasury will not know the details of that. The multi-year estimate for 105 non-structural reliefs adds up to approximately £195 billion of relief in 2021-22.

Ali asked which minister should have overarching responsibility for tax reliefs. The Chancellor has overarching responsibility, but the Exchequer Secretary and the Financial Secretary also cover reliefs, Atkins suggested.

Anne-Marie Morris enquired whether the minister recognised that some reliefs distort business activity and discourages it. “We look very carefully at reliefs and at taxes from which there is relief being sought”, Atkins said. “One could argue that persuading a multinational company to invest lots of money here in the UK is a distortion of the market, but it is one that you and I would very much welcome.”

Indicating the complexity of the VAT threshold, Morris suggested that there is plenty of evidence that demonstrates how it discourages businesses going over the level at which they become liable. She wondered what the government’s policy is on reviewing these sort of reliefs.

Atkins pointed to the consultation that they conducted in 2018 in relation to the design of the VAT threshold, saying that: “I am told that there was no clear option for reform… [S]ome advocate for me to increase the threshold… There are others who go completely in the opposite direction… I am genuinely receptive to conversations about where that threshold is set, but the reasons why we have stayed where we are is that we believe on balance that £85k is about the right place”.

Morris argued that, since 2018, a lot has changed and another review is necessary, to which Atkins responded that at the moment they have no plans to do so.

You can read the full transcript here and watch the full session here.