Summary: HMRC performance in 2021/22
16 January 2023
The Government has two months to respond to the House of Commons Committee report, which also outlines recommendations in regards to the HM Revenue and Customs (HMRC) Annual Report and Accounts 21-22.
HMRC employs around 63,000 people and is responsible for administering the UK’s tax system. HMRC’s vision is ‘‘to be a trusted, modern tax and customs department’’. The HMRC Annual Report and Accounts 21-22 was published on 18 July 2022, which included information about its vision, objectives and the way it operates.
HMRC’s chief executive commented on the performance summary:
‘‘we stepped up to address huge new challenges that mattered to the whole of the UK and delivered the urgent support our customers needed quickly and effectively. As this year’s annual report shows, we carried on doing that during financial year 2021 to 2022 without losing sight of our core purpose of collecting tax and delivering financial support – and despite facing difficult decisions along the way’’.
However, the House of Commons Committee report concluded and recommends the below points:
1. HMRC has not yet returned to setting a formal compliance yield target, against which it can be meaningfully held accountable
Recommendation: HMRC should return to a formal compliance yield target with HM Treasury from April 2023 and report the target publicly
2. Resourcing HMRC’s compliance work to maintain rather than reduce the tax gap means the government is missing out on billions in lost revenue
Recommendations: HMRC should set out what level of investment in its compliance teams would be needed to reduce the size of the tax gap, and confirm what, if any, intention it has to pursue this
HMRC should also calculate and report an uncertainty range for its headline tax gap estimate to provide more transparency to users of the estimate
3. HMRC’s plan to only recover a quarter of losses due to fraud and error on its COVID-support schemes does not go far enough
Recommendation: In determining what further recovery action to take on fraud and error on the COVID-19 support schemes, HMRC should:
keep under review the return on investment of spending more resources on recovery and set out how it will ensure it maintains a level playing field for individuals and businesses that did not abuse the schemes, rather than being seen to reward those that were dishonest
4. We are concerned that HMRC may be lagging behind other established tax authorities in preventing fraudulent VAT registrations
Recommendation: HMRC should engage with its international counterparts to understand what lessons it can learn in preventing fraudulent VAT registrations and minimising the impact on honest taxpayers
5. Taxpayers and their agents are still not receiving an acceptable level of customer service
Recommendation: HMRC should write to the Committee setting out its plan to improve customer service to adequate levels as quickly as possible, and within three months
6. HMRC has further to go until it can differentiate between taxpayers who are genuinely struggling, and those who can afford to meet their liabilities but are choosing not to
Recommendation: HMRC should set out how it will strike the right balance between providing support to taxpayers who need it, whilst ensuring that those able to meet their liabilities are doing so. HMRC should also set out when its single customer account will be ready and consider how it can bring the implementation of it forward
7. Research and development tax reliefs are costly, prone to abuse and provide questionable benefit to the UK economy
Recommendation: HMRC should develop its analysis of the additional research and development expenditure its relief schemes result in, to consider what impact that expenditure has on the UK economy. HMRC should report to the Committee on its findings within 12 months.
The House of Commons Committee also commented:
‘‘HMRC should be much more ambitious with its plans to tackle fraud and error and recover losses. It needs to rethink its approach so that it can bring in more money with its limited resources, ensuring honest claimants are not left at a relative disadvantage simply because they are more compliant’’.
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