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HMRC must urgently explain why some taxpayers have had no support during Covid

20 January 2021

Since March 2020, HM Revenue & Customs (HMRC) has provided more than £80 billion in support to businesses and individuals, including through the employment support schemes, to help as many people as possible as fast as possible.

Despite these efforts, quirks in the tax system have left whole groups of taxpayers without the financial support offered to others through the COVID-19 pandemic – some of the workforce has "not had a penny" even though lockdowns and tier restrictions mean some cannot work at all  – while some large companies that have taken taxpayer support have continued to pay out dividends and high executive salaries.

The Committee says HMRC should, within six weeks of this report, publish an explanation of why it can't help those freelancers and other groups that have been excluded from receiving any support, and set out steps it can take to overcome those obstacles.

The COVID-19 pandemic has shown the importance of an effective tax administration system and put a huge strain on HMRC's day to day operations, with a significant impact on HMRC's performance evident in falling tax revenues, poorer customer service, reduced compliance activity and increased debt balances.

On top of the constant need to maintain and improve its administration of the tax system, HMRC already faced a number of strategic challenges in its plans and progress transforming the tax system and its preparations for the end of the transition period following the UK's exit from the EU. But the Committee says HMRC spends too much patching up out of date and potentially risky IT systems rather than modernising them, and "too often struggles to provide the reliable and timely financial estimates upon which good financial and operational planning depends".

For example: HMRC's estimates of Corporation Tax revenues needed to be retrospectively amended by £6.6 billion in 2019-20; basic errors in financial forecasting saw it exceed its cash requirement control by more than £700 million; it is uncertain what its estimate of fraud and error from tax credits should be; it is some way off assessing the actual level of error and fraud from the employment support schemes, with planning estimates ranging from 5% to 10% in the Coronavirus Job Retention Scheme; and it has no estimates of error and fraud from the Eat Out To Help Out scheme, despite it having ended in August.

Starting in April 2017, the Committee has repeatedly raised concerns about HMRC’s management of its property estate, which it says is "locking government into holding larger properties for longer than needed". HMRC’s view that its regional centres are located in prime sites and can be leased out to the private sector or other government departments "is an out of date assumption that needs urgent revision in light of changing economic conditions".

Meg Hillier MP, Chair of the Public Accounts Committee, said:

"Obviously, the national system of revenue collection underpins all public spending and services. As public spending balloons to unprecedented levels in response to the pandemic, out-of-date tax systems are one of the barriers to getting help to a significant number of struggling taxpayers who should be entitled to support. And the system is going to struggle, and in many cases fail, to capture or deal with those wrongly claiming it.

HMRC needs to redress the balance in its spending and use of tech, and get ahead on the basic financial and economic metrics that we need to adapt and respond to this pandemic in real time. There is also a huge question about how our customs and revenue technology at the borders is coping, and will cope in the months and years to come. There isn’t really any breathing space – HMRC’s out of date systems need to catch up fast."

Further information

Image: hmrc