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'Cracks showing' as HMRC seeks to manage daunting workload

2 November 2018

  • Fresh action needed on fraud and error in Tax Credits and value for money of tax reliefs
  • Customer service targets are too narrow; the authority should broaden its performance measures
  • Serious concerns remain over risks to customs and borders after Brexit, especially if there is no deal

HM Revenue & Customs (HMRC) has a daunting task as it prepares for the UK's exit from the European Union, in whichever form that takes, whilst reprioritising its ongoing projects and day to day services.

The Committee recognises these challenges but we remain concerned about the risks to customs and borders post Brexit and the impact on British businesses.

The recently announced further delay to HMRC's new Customs Declaration Service, which means that it is very unlikely to be ready for exporters by the time of Brexit, and the need for further development of HMRC's systems so that by March 2019 they can handle postponed accounting for import VAT in the event of no deal, underline the risks. We have written separately to HMRC to emphasise our continued concerns.

And whilst managing these projects, and with staff and resources diverted, HMRC has had to make choices about how it delivers its ongoing work.

Error and fraud in Tax Credits is a long-standing problem for HMRC, with £1.3 billion lost to error and fraud in 2016-17 alone. It is very disappointing that HMRC expects the rate of overpayments to increase and exceed its target to keep error and fraud below 5% of Tax Credit payments.

Our concerns last year that HMRC lacked an incentive to reduce error and fraud in Tax Credits have now come to fruition. HMRC has de-prioritised action to reduce error and fraud because Tax Credits are being replaced by Universal Credit.

We remain concerned about HMRC's management of tax reliefs. There are too many reliefs where HMRC has only a limited understanding of whether they represent value for money.

We are also concerned by the variable standard of Pay As You Earn (PAYE) administration by employers and pension providers. Poor administration leads to errors in tax collected, causes problems for taxpayers and results in errors in Tax Credits and Universal Credit payments.

HMRC has tried to encourage employers to improve administration of PAYE but considers it does not have the sanctions to tackle the issue effectively.

HMRC's customer service targets are too narrowly focused and do not help it understand the overall quality of service it provides to individuals and to businesses.

Chairs comment

Comment from Public Accounts Committee Chair Meg Hillier MP:

“HM Revenue & Customs is under pressure and in some areas the cracks are showing.

The authority expects fraud and errors in Tax Credits to exceed its target in successive years, driven in part by policy changes that have effectively removed HMRC's incentive to bring fraud and errors under control.

It lacks understanding of the costs of a vast swathe of tax reliefs, which means it cannot take an informed view on their value for money.

HMRC's customer service targets do not fully reflect the customer experience, undermining its ability to plan and deliver these services effectively.

And, as we have recorded elsewhere, serious concerns remain over the new Customs Declaration Service and operations at the border after Brexit.

The potential consequences of no-deal are extremely serious and the Committee will be seeking clarity from HMRC when we take further evidence on Monday next week.
Our Committee recognises the scale of the challenges facing HMRC and the time-critical nature of its Brexit work. But the authority must not lose sight of its wider responsibilities to UK taxpayers.

There are practical steps HMRC can take to better safeguard public money and we encourage it to respond positively to our recommendations.”

Further information

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