Treasury Committee
Oral evidence: Work of HM Revenue and Customs, HC 5
Wednesday 9 September 2026
Ordered by the House of Commons to be published on 9 September 2026.
Members present: Dame Meg Hillier (Chair); Dame Harriett Baldwin; Chris Coghlan; Bobby Dean; Jim Dickson; John Glen; Dame Siobhain McDonagh; Ms Julie Minns.
Questions 584 - 682
Witnesses
I: John-Paul Marks CB, First Permanent Secretary and Chief Executive, HM Revenue and Customs; Jonathan Athow, Director General, Strategy and Policy, HM Revenue and Customs; Penny Ciniewicz, Director General, Customer Compliance, HM Revenue and Customs; Carol Bristow, Director General, Borders and Trade, HM Revenue and Customs.
Witnesses: John-Paul Marks, Jonathan Athow, Penny Ciniewicz and Carol Bristow.
Q584 Chair: Welcome to the Treasury Committee on Wednesday 9 September 2026. Today, we are looking at the work of His Majesty’s Revenue and Customs, in one of our regular sessions to examine on behalf of the taxpayer how well the Revenue is working at collecting tax and supporting its customers—the taxpayers.
I am delighted to have before us a panel of senior people from HMRC. John-Paul Marks is the first permanent secretary and chief executive of HMRC. He is joined by Penny Ciniewicz, who is director general for customer compliance at HMRC; Carol Bristow, who is director general for borders and trade at HMRC; and Jonathan Athow, who is director general for strategy and policy. A warm welcome to you all.
JP Marks, you have been in position now for about a year. You have had quite an eventful summer—never uneventful in your line of work, I suppose. What are the top two or three things that you are proud of, and a couple of challenges that still remain for you in your role as permanent secretary?
JP Marks: Thank you, Chair, and afternoon to the Committee. On things that we are proud of, I will start with our compliance operation—I can say a bit more through the afternoon, as you wish. When we saw you last time, we were talking about the capacity build that we had committed to and the fact that that was a steep curve. We are ahead of the plan, which we are pleased about. Obviously, we need to consolidate that capability and to realise the productive output, but we have made a really good start—all credit and thanks to the team for the hard work. Last year, we achieved over £50 billion of compliance yield for the first time. We are aiming for that to be over £60 billion in ’29-30. That is the level of additional tax revenue we will seek to collect with additional capacity and capability. So far, we judge that to be on track.
Customer service is moving in the right direction. I can come to some of the proof points of that: complaints are down a third; the average speed of answer is less than 10 minutes this month; and if we look at the take-up of our app, it is up over another 2 million, and we are aiming to take that to 10 million next year if we can. Those two core objectives are moving forward as we would intend.
We talked previously about the transformation portfolio that we have committed to, and we set it out in our road map. That is high ambition, with a significant level of complexity to it, and it remains amber overall, but whereas last year we were talking about some of the transformations, a number of them are now live. Jonathan is one of the SROs of Making Tax Digital, where we have had over half a million sign-ups already. We can talk more about what happens next there, but it has made a good start.
Q585 Dame Harriett Baldwin: May I clarify that? Did I hear that the number of users of the app has gone up by 2 million? What is the new total?
JP Marks: It has gone up now to 7.6 million in total, so up by over an additional 2 million, which was over 20% up on the previous year. That is a good step up, but with more to go. It is part of the mission to become a digital-first HMRC, where 90% of our customer interactions are digital. They are at around 80% at the moment. That is on the trajectory that we are shooting for, but we have to make more progress, particularly around shifting some of our postage activity into our self-serve digital channels in the next 18 months or so.
Just on the last two strategic objectives, on people—ultimately, we are a people organisation—the growth in capacity is on track, as I said, and people engagement in HMRC hit 60% last year for the first time. There is a lot to do to focus on building the capability and confidence to operate new tax regimes and new reforms and operate in a digital environment.
We integrated the Valuation Office—
Chair: We will come to that.
JP Marks: Carol can say more about the customs regime, but we are embedded post exit of the European Union now, and set up to deliver reforms like low-value imports.
On your question about challenge, the debt balance remains a challenge. Debt as a percentage of receipts has come down; it was around 5%, but is down to about 4.7% or 4.8% now. We aim to bring it back down as a percentage of receipts to what it was pre-pandemic. There is more capacity to do that, with 2,400 more people. That is investment in capacity in debt—
Q586 Chair: Does that include people in Time to Pay?
JP Marks: That includes giving people opportunities and time to pay, so that they can do so in a way that is affordable for them—absolutely—and, again, making that easier to access as well. We have received the investment we need to collect that additional debt, in order to reduce it as a percentage of receipts, but none the less we recognise that it is a complex task and that we need to do it with a lot of care.
I have written to you, Chair, about a number of complex legacy challenges in the tax system. We spoke about child benefit the last time I saw you. I have written to you on the error to the taxation of the state pension, which we will fix forward and go back to 2021, and on the threat environment—both external and insider threat. I wrote to the Committee on the HMI report as well.
We think we are heading in the right direction; we think our transformation is on track and we can see outcomes improving. But we recognise that the environment is complex and we are delivering a lot of change, which we need to continually focus on and take care with.
Q587 Chair: You mentioned the Valuation Office Agency being incorporated. These system changes can take quite a lot of time and energy. How has that gone? Is there anything that you have not been able to do because of the energy that that has taken up?
JP Marks: I am not worried about the opportunity cost, particularly; there wasn’t a thing that we set aside to undertake integration. It went live on track and on time, in April this year. Now we have more of the Valuation Office performance embedded into HMRC’s core processes, so every month we as an ExCom scrutinise all of our performance in our hub process. That now includes all the Valuation Office performance hardwired into our change portfolio, our risk processes—
Q588 Chair: Have you been changing anything as a result of what you are seeing?
JP Marks: We have just published an update to our transformation road map. We did that this summer and it now includes far more content about how we will transform the Valuation Office, consistent with HMRC’s strategy to be digital first, to ensure that we exploit the Microsoft stack that sits at the heart of the Valuation Office to use AI to support more self-serve valuations in the longer term.
We want to make valuations a confident, trusted process that people can engage with, and enable people to see the methodology and the data sources that they are drawn on. The Valuation Office is doing good work supporting council tax revaluation in Wales, obviously it just delivered the recent revaluation, but the high-value council tax surcharge is a complex change coming down the track, and we need to be well organised for it.
Q589 Chair: That is coming down the track, so what do you need to have in place to make sure that it works? There is a lot of worry out there that people will have inspectors visiting their home and checking their extension. Can you talk through what you are doing to make that workable both for your end of it and for the customers—the homeowners?
JP Marks: We want to make it as easy as possible for people to see the way in which the list is compiled, such that they can understand how their property has been valued. That list would be published in advance of the measure, such that customers would have a chance to check it, to challenge it if for any reason they think it is not accurate, and ultimately to appeal if there is a dispute.
To offer reassurance regarding the speculation recently on home visits, that would be a last resort and only with the agreement of the homeowner. Normally, it is done where it is actually requested by the homeowner because they would like the Valuation Office to come and see what they are trying to say if there is the need for additional evidence.
We absolutely want to put in place a process that will draw on the best data—planning, registry office, the opportunities around publicly available data on property sales, and the large amount of data that the Valuation Office already has—and that we get the list published as soon as possible so that customers have good time to check and challenge it as they wish.
Q590 Chair: You say “as soon as possible”. What timeframe are you looking at?
JP Marks: Ballpark, my hope is that we would publish in this calendar year the approach we will take, so that it is clear for everyone to see, and then the list would hopefully go live in autumn next year, for the measure to be implemented from the spring of the following year. That would give a good six-month period for people to see the draft list and be able to check and challenge it, if they wish, and then obviously to allow for an appeals process.
Q591 Chair: How many appeals are you expecting to have, percentage-wise, from the cohort of properties involved?
JP Marks: I will need to check exactly what the planning assumption is. We have assumed an additional headcount of around 300 for the administration of HVCTS for the Valuation Office, which is just less than 10%. That would cover everything from customer sales to the check, challenge and appeal process. If we do a good job on transparency, engagement, the banding and support, we will have very low volumes of appeals.
Q592 Chair: To summarise what you are saying, you want to try to get as much information out, so there are no surprises for the homeowners who are affected. You are hoping that that will reduce appeals. Is that right?
JP Marks: Exactly.
Q593 Chair: Finally from me—we will cover some of this in more detail as we go—a lot of cost of living measures were announced by the new Prime Minister and new Chancellor over the summer. We know that HMRC, however talented your people are, has to do a lot of technical work behind the scenes to get these things off the ground. What challenges have those presented you with, and which are the most challenging to deliver?
JP Marks: A number of changes were announced, as you say. There is the further 20% business rates relief for pubs, clubs and live music venues in England from ’27-28. That relief change is feasible and on track for implementation. The Government also announced an independent review of how pubs and hotels are valued for business rates. Our assessment of feasibility will be a function of what comes out of the review and how complex a change that is. That would apply to the ’29 reval, so there is a bit of time there. On the VAT change for electricity, we provide advice into the policy process for Treasury colleagues. That is feasible and on track, and we will lay the statutory instrument this month.
We have welcomed back James Murray as our Financial Secretary, so we are working now with a Minister we have worked with before. We are looking forward towards the Budget. The measures that have been announced to date are all feasible and on track for implementation.
Q594 Chair: When Mr Murray appeared in front of us when he was previously the chair of HMRC’s board, having just taken that on as a new Minister, he was clear that he was in charge and was very hands-on as a chair. You had a Minister doing that role in between—Dan Tomlinson. How much has Minister Murray, as chair of the board, been involved in the mechanisms for delivering some of these cost of living measures?
JP Marks: It is obviously early days since the new Government—
Q595 Chair: Has the board met since he became the new Minister?
JP Marks: Not since James Murray was reappointed. We have a board meeting this month, and we are expecting him, but of course the Financial Secretary works with the Chancellor on those measures. The governance model that was put in place at the beginning of this Parliament remained in place throughout the period when Dan Tomlinson was Exchequer Secretary, and it continues as is. The strategic objectives did not change. The Minister is still chair of the board. We have a healthy relationship, and it is working well.
Q596 Chris Coghlan: Mr Marks, when you were last in front of this Committee, I asked you about the value for money of patent box, and you kindly wrote to the Committee about the HMRC evaluation of it, which was great. You said that, in a 2020 HMRC evaluation, there had been about a 10% increase in assets held by companies that use the patent box. Taxpayers, of course, spend a vast amount of money on this a year—£2.3 billion—and my understanding is that 40% of that goes to one pharmaceutical company.
The HMRC evaluation substantially quotes a 2018 paper by Gaessler, which found almost no impact from patent box relief. Could you write back to the Committee and explain exactly why the 2018 Gaessler paper does not apply to the British patent box scheme? It is quite an important question, given how much taxpayers’ money is spent on it. How do you know that that 10% increase in assets would not have occurred anyway, or that this is not just a bung to one company to remain invested in the UK?
JP Marks: Okay. I am very happy to commit to writing again on the evidence base we have used to derive the conclusions. We can see if there is any further update—
Q597 Chris Coghlan: To be clear, my scepticism is because I read why the HMRC evaluation rejected the paper. You basically said that the paper looked at 12 countries, four of which did not have that much data, but that still leaves eight countries with data in the paper.
JP Marks: Do you want to add anything, Jonathan?
Jonathan Athow: I am happy to write to the Committee.
Q598 Chris Coghlan: On the tax gap, could you tell me why it has apparently increased to £59.2 billion in 2024-25 from £52.8 billion in the previous year?
JP Marks: I wrote to the Committee when we published the latest data with regard to the tax gap by value and as a percentage of theoretical liabilities. The chart shows that, as a percentage of receipts, it has been broadly flat. If you go back to when the data was first published—to 2005-06—it is up at 7.5%. The latest data estimate brings it to 6.4% for 2024-25. A couple of years ago, it was at 6.6%. We think it is broadly flat. There are some shifts in there. Jonathan may be able to say a bit more about that. If you look at avoidance, it is broadly flat. You can see that criminal attacks has actually come down a bit, which is encouraging.
We know that failure to take reasonable care and error are still the two key behavioural drivers of the tax gap. We have a number of reforms already in delivery to seek to address that, including Making Tax Digital. There are other changes around nudges, prompts and supporting customers to get more things right first time. As I alluded to, there is also the additional capacity to undertake additional compliance checks where they are targeted and it is right to do so. We think it is broadly flat.
I referenced the additional £10 billion of tax that we think we are forecast to raise, scored by the OBR, in the final year of the spending review. The OBR published a scenario for the tax gap over the scorecard period, given all the announcements to date, which saw a reduction of 0.4%. Obviously, we will continue to iterate the estimate, publish it annually and then write to the Committee with our conclusions on any change in those drivers and/or our response.
Q599 Chris Coghlan: Are you saying that it is too early to see the impact of all these changes on improving the tax gap?
JP Marks: Yes. Jonathan might be able to say a bit more about the methodology and the approach, but the latest estimate is for 2024-25. That is still, as you say, in arrears.
Jonathan Athow: To give a reason why it takes a while to update, there are different methods used in estimating the tax gap. One of them is called a mandatory random enquiry programme, where we take a selection of cases at random and work them through to see the level of non-compliance. If they are taken at random, that should be representative of the whole population. Obviously, we need people to file their tax return before we can do that. If it is self-assessment, that can be until nine or 10 months after the end of the tax year. We then have to work through all those cases and do that. That is a lengthy process. It gives you a good sense of accuracy, if it is done properly, but it does mean that the tax gap is often really a backward-looking measure. It does take a long while for the measures to come into effect and then to show up in our measurement.
Q600 Chris Coghlan: I understand. Apparently, in 2024-25, 62% of the tax gap was attributable to small businesses. Is there a reason why you are not focusing more of your compliance resource on that area?
Jonathan Athow: Part of our activity is on small business; tackling compliance there is a focus for us. Some of that is the activity that Penny’s teams look at in terms of downstream activity. That is also where we are trying to invest in different ways of working. Making Tax Digital is aimed at the self-employed and landlords, who are part of that small business population. It is also about changing the administrative processes to reduce the scope for non-compliance.
Q601 Bobby Dean: You just spoke about the mandatory random enquiry programme. Is this the sample of 300 businesses? It has been questioned in previous evidence sessions whether that is large enough. You mentioned that the random element makes it representative. Apparently, in Canada, they have much larger sample sizes.
Jonathan Athow: I should say that a random enquiry programme costs money. First, it requires the people to actually do the work, and those people are doing random enquiries, not risk-based enquiries, so there is also an opportunity cost to doing this. We carefully target our resources. The choice of the size of the sample is based on professional statisticians from within the department working out what is a minimum size to give us a representative sample. As I said, if we wanted to do more cases, that would be more expensive for us to do and we would have to—
Q602 Bobby Dean: I note that you went to the cost implications first, and you said the sample size was a minimum. Would you prefer to go for a larger sample if you could?
Jonathan Athow: If you were talking to the statisticians, they would always like more data, but that comes with a cost. As leaders in the department, we would always say, “What is a good sample size that gives us a representative sample that allows us to estimate the tax gap”—bearing in mind the limitations we talked about in terms of it being backward looking—“and give us a good handle on it?”
To elaborate a bit more, a smaller sample would increase the volatility of the estimate; it would not bias the estimate either down or up. Having a small estimate might create more noise, but it would not create biases in the system. We have to balance public resources carefully between random enquiry and risk-based enquiries.
Q603 Bobby Dean: Understood. Penny Ciniewicz, we spoke previously about the wealthy tax gap. I understand that you had about 1,000 staff working on that the last time we spoke, but there was an intention to recruit 400 additional people. How has the recruitment been going for that team?
Penny Ciniewicz: We are making good progress with that, and we have set up our wealthy offshore team. It’s the beginnings of it; we are not all the way through it, by any means. We have also recruited a good number of external experts, who are really valuable in bringing insight and different ways of looking at the problem. We are also, later this year, going to be publishing our wealthy compliance plan, which we committed to the PAC to publishing. We have been out talking about that with the industry and getting input into it. That will set out how we intend to approach wealthy compliance over the next few years.
Q604 Bobby Dean: I note that you spoke about early stages and “a good number”, but if you have an actual number for how many of the 400 have been recruited so far, will you write to us with that?
Penny Ciniewicz: I will check—I am not sure. We will write, I think. I don’t think I have that with me.
Q605 Bobby Dean: We also spoke about the number of investigations. I think at the time you were running about 8,000 investigations in this area, and you had a target for increasing the number of positive charging decisions by 20%. Do you have any updated figures on those points?
Penny Ciniewicz: We are intent on increasing the number of positive charging decisions by 20% by 2029-30. Obviously, we have to do the investigations first, before we can bring the charges, so I would expect to see those increase gradually over the next few years—certainly not at this early stage of that plan. But there are the resources to help us do that, both in wealthy and in our small business evasion team, which is newly set up. We have 350 new people in our fraud investigation service’s small business evasion team—they are now on board—so that work will be gathering momentum over the next year or two. We will report back, in the annual report, on the number of positive charging decisions.
Q606 Bobby Dean: On a slightly separate but related point about revenue collection, which is particularly relevant to this group, we see lots of newspaper headlines about expected revenue from various tax changes relating to capital gains tax, the non-dom regime, and so on. There seems to be much dispute about how much is actually realised versus what was expected to be realised. Do you have any further data on that for us at this point in the Parliament? Could you explain to us your relationship with the OBR and the Treasury when they are making the estimates in the first place? How do you then feed that back after you get the actual returns?
Jonathan Athow: Perhaps I could address that point, particularly on the non-dom reforms. They began in April ’25; again, we have not had the tax returns for January for those, so at the moment we do not have any new data. But normally there are two elements to any sort of costing in this space—estimating the additional yield. There is normally the static effect, which is what would happen if taxpayers did not change their behaviour. That is the easy bit to do: it is a multiplication of a change in rate by the number of taxpayers in the tax base. The more difficult judgment to make is what the behavioural response will be.
In some parts of the tax system, there is a good standard literature on how taxpayers respond. If I look at, say, income tax changes, particularly for high-income individuals, there is a good literature there. In other cases, things are much less well researched. Sometimes there is good evidence to draw on. The analytical teams that work in my area would look at that evidence to come up with a central estimate of that behavioural relationship, and then discuss that with the OBR. If the OBR was happy, it would sign off the costing.
With non-doms, the UK had a very bespoke arrangement, so there was not a huge amount of evidence to draw on. It had not changed significantly for a long time so, again, estimates had to be made. There were two estimates in the costing: 12% of those without trusts would leave the UK, so they would no longer be taxpayers, and for those with more complex affairs, including trusts, I think we had a 25% behavioural response. Those were the assumptions we looked at, but we will not know for certain how accurate they have been until we get the tax returns in January and are able to analyse them and look at what the tax return from the group that were non-doms will be.
The other complication you sometimes get, particularly with things like capital gains tax, is something called forestalling. People will bring forward disposal of assets if they believe that taxes are about to rise—we saw that with income tax changes when the 50p rate was introduced. That adds extra complexity, because you do not know if it is a permanent effect or if people are just bringing forward transactions that would otherwise have happened later. That adds a bit of complexity to that judgment.
That is broadly how we will go about this. We will come up with estimates ourselves, drawing on the academic evidence—in some cases, there is rich evidence—and we will then put that to the OBR.
Q607 John Glen: To build on Mr Dean’s point, in the run-up to any fiscal event lots of think-tanks put out lots of papers saying, “You’ll get x amount of revenue by putting this tax up”—for example, if you put so many per cent on assets over £10 million or if you put in various forms of wealth tax. Those assertions are made and widely reported, and that feeds into what is considered a legitimate discussion. Where does your professional judgment get involved in this? You are the experts. Often a fiscal event happens and there is a wide difference between the choices that are made and what people asserted could have happened. What do you think about that discussion? You are not exactly ill-informed observers. How do make your professional judgment count in this discussion with Treasury?
Jonathan Athow: There are two things to say. First, we obviously cannot get involved in public discussions in the run-up to fiscal events. That is always challenging when you see numbers floating around.
John Glen: That you do not agree with.
Jonathan Athow: There is a wide range of views. We try to look dispassionately at the evidence. If new evidence is presented, we will synthesise that with our existing evidence. One interesting area is that modern data techniques allow more questions to be answered. For example, we have something called the Datalab, where we allow academics to come in and do work. If that provides new evidence, we incorporate that into our judgments. Part of our job is to work out, as new information comes along, what is relevant to the questions in front of us, and therefore incorporate it into our judgment. Do we think it supports our current view? Does it support changing our estimates? It is a constant picture of updating.
Q608 John Glen: So you can confirm to the Committee that you are alive to evolving thinking and data points around verifying new choices on tax.
Jonathan Athow: Yes. As I said, in various cases we have looked at the wide range of different evidence out there and assessed it. How applicable is it to the UK? Sometimes there is evidence from countries that have different tax systems from our own, so it is not always relevant. We have to look at how relevant information is to the decision we are making and then factor that into our overall assessment.
Q609 Ms Minns: In our session on high streets, we heard it described that the country has an “epidemic” of illegal activity on its high streets. How is HMRC using its enforcement powers to tackle that issue?
JP Marks: Shall I start and then colleagues can come in? This is a complex, serious question and there is a lot to reflect on. Carol can say a bit about how our work actually starts overseas and at the border, because one of the things we are trying to do is disrupt illegal supply chains, gather intelligence and disrupt illicit trade. We do that with international partners and Border Force. Carol can talk a bit about some of the progress there—for example, last year, the largest seizures of illicit tobacco. We were reflecting on our experience last week, seeing one example of that. So a huge amount of work is going on there.
Penny leads our compliance operation. We have committed to having 30,000 compliance interventions this year, focused on the high street, with a lot of collaboration with the National Crime Agency and local partners to make sure we are responding to whistleblowing and fraud referrals, and targeting that resource in the right way.
The final thing I will say comes back to our strategy on small business, given the tax gap. We want to increasingly make it easier to comply with tax obligations, reducing the risk of error and supporting people to take care more regularly. Part of that is about leveraging technology and software to support people in handling complexity. Perhaps we can do a bit on the border and then compliance, if that’s okay—Carol?
Carol Bristow: It is fair to say that our approach to customs compliance and enforcement is grounded in a risk and intelligence-based approach. That is partly because the sheer volumes of goods crossing the border mean that there is an important premium on HMRC being able to make sure that we do not disrupt legitimate flows of trade in and out of the UK, which is obviously critical to support the Government’s economic stability and growth objectives.
In that context of risk, the customs regime deals with many different types of risks. It is a complicated regime that is responsible for a range of different things, not just revenue raising. If we look at illicit tobacco and alcohol, and the sorts of issues that your Committee has looked at in the context of the high street in particular, illicit movements of tobacco are clearly one of the major areas of risk that we particularly highlight. So we do quite a lot of work with traders and the broader border industry to ensure that our guidance and systems are really clear.
When it comes to the harder end of the enforcement market, we have an opportunity to intervene at the border. As JP mentioned, a lot of the compliance work that we do is in partnership. Penny’s teams work significantly overseas, which is where I would suggest our compliance activity actually starts. We have a network of fiscal crime liaison officers. We work very closely with other jurisdictions and EU member states particularly to ensure that we are using the intelligence that is generated in overseas territories and that we are cracking down on illegal, illicit tobacco before it gets anywhere near the UK’s border. Penny might want to say a bit more about some of the activity we see there.
We then have an opportunity to intervene at the border. Border Force, a Home Office agency, is responsible for physical enforcement and physical checks of goods at the border. We intervene at the border via risk and intelligence to make sure that, again, we are focused on targeting our resources at areas of highest risk.
As part of that risk and intelligence approach, we use a series of risk profiles across a range of goods crossing our border. That range of intelligence comes from a variety of different places. Some of that is human intelligence and some is whistleblowing from people who have been involved in organised crime. Quite a lot comes from fiscal crime liaison officers.
Q610 Ms Minns: Can I pause you there, because I want to pull us back to the high street? We heard evidence—and I see this a lot in my constituency—that a lot of this is getting to the high streets. What is your best guess on the percentage of tobacco now being sold on our high streets that is illicit or illegal?
Jonathan Athow: We estimate a tobacco tax gap of around 15%—so about 15% is missed from that. You can infer that that is roughly the size of the illicit market. To estimate that, we have surveys of how much people smoke. We know that people tend to tell us that they do not smoke as much as they do, so we uplift that. We also know that some people say they don’t smoke when they do, so we use some data from our health survey for England, where they swab people’s saliva, and that can tell whether people are smokers or not.
One of the things we are now investing in is research, with a private sector company, looking at whether we can use waste water—sewage—to detect metabolites of nicotine, so we could estimate how much people are actually smoking. Once you know how much people are smoking and how much is legitimate, because we know how many clearances there have been and how much cross-border shopping, we can work out what the gap is.
Q611 Ms Minns: You think it is 15%.
Jonathan Athow: That is our current best estimate.
Ms Minns: That is a bit of a way off previous evidence we heard, which put it an awful lot higher. I look at the shops on my own high street, and the number of raids, and I would say it is lot of higher. I think you said there were about 30,000 interventions. My maths might be wrong—someone can correct me—but that is probably fewer than a 100 per constituency. I have had about 20 or 30 in the past six months. Is 30,000 enough?
Penny Ciniewicz: I will pick that up. We work a lot with partners. If you take the tobacco instance—and it is not the only harm we would be tackling on the high street—we work with trading standards, who have the key role on the high street of enforcing on tobacco. We work further up the supply chain in partnership with them. We supply them with intelligence and tackle the organised criminal gangs that supply 95% of the illicit tobacco. We are doing that, as Carol said, overseas with our fiscal crime liaison officers. There are 50 or more of them in 35 countries, and they work closely with international partners. We see the effects of their disruption in terms of seizures, not just of tobacco but of assets of criminal networks.
We also work inland in the UK, disrupting supply before it reaches the high street. We are trying to disrupt illegal tobacco factories and supply chains, and put those priority tax criminals at risk of their supply chains being disrupted.
When it comes down to the work we do on the high street, we again work with partners right across Government. We co-ordinated the first cross-Government risk assessment of issues on the high street, working with partners right across Government. We are also part of the high street organised crime unit, working with police authorities, the National Crime Agency—
Q612 Ms Minns: I am sorry to interrupt, but my understanding at the moment is that the police do not have access to the track and trace registration. Would it help if they did?
Penny Ciniewicz: They can ask us for track and trace data in particular cases. They are not part of the statutory framework—they do not have statutory responsibilities in relation to track and trace, unlike trading standards, who are part of the end-to-end system. They actually have an app on their phones for scanning tobacco, and the track and trace data is on their phones. The police forces have to ask us for particular information in relation to particular cases. We are in discussion with them about that and will continue to have that conversation.
Q613 Ms Minns: Do you think it would help?
Penny Ciniewicz: We are keen, as you can see from the fact that we facilitated that cross-Government risk assessment, to use all our data and intelligence collaboratively, to create the richest picture we can of what is going on on the high street, so that all the agencies involved can come to that problem and bring their particular expertise to tackle the parts of it that fall within their remit.
Q614 Ms Minns: My final question goes to the point about information sharing. My understanding of how it works with trading standards is that they can use their app, they can go into the shop and they can scan it. But what they do not necessarily have is the ability to pull off a complete list of businesses that would be registered with track and trace in their local authority area, which they could match against all the mini-marts and vape shops that they know are on that high street. They could then say, “D’you know what? Twenty of the 40 are not on track and trace, so I can now target.” Have I got that correct? Would I have to use my app individually in each shop to know? Would it improve things to have a list of everybody in a trading standards area that is on the track and trace system?
Penny Ciniewicz: I am not sure about that; I am not sighted on it. I am happy to take that away and consider it.
Q615 Dame Siobhain McDonagh: We have heard that the restrictions on information sharing between the Valuation Office and local authorities make it harder to tackle business rate abuse. Do there need to be changes to legislation or regulation to facilitate better information sharing?
JP Marks: It is quite possible that more could be done. There is lots of close collaboration going on with councils. The Valuation Office undertakes the valuations and then the councils issue the bills and collect the money.
We would have to take away the action of coming back to the Committee to set out what already happens in terms of collaboration to target business rates, fraud and error and data sharing. A bit like with the track and trace opportunity, if there are things that have been raised with the Committee where there are opportunities to do more and we can, we are very open to that. It has not been raised with me recently, but I am very happy to look at it.
Q616 Dame Siobhain McDonagh: Particularly when it comes to the high street, there are so many agencies involved: you, the Ministry of Housing, Communities and Local Government, the National Crime Agency, local authorities and the police. You said earlier that you were the lead on tackling some of the tax avoidance issues on the high street, but is it clear who is in charge and who shares the intelligence? It seems like constituents and residents are far clearer about organised crime and tax evasion on the high street than HMRC.
Penny Ciniewicz: The high street organised crime unit, which was set up and announced this spring, brings together all those agencies—both the policymakers and those of us involved in enforcement. It is looking at the problem in the round. It is looking at both the policy solutions and the enforcement across a whole range of different issues based on a holistic risk assessment of all the things that one might see on the high street.
We are very active when it comes to intelligence sharing and there is active sharing of intelligence and information. For instance, we drive trading standards’ work with active intelligence sharing and their work feeds back into the development of our intelligence. The work that is done on the high street gives us insight, which we use to further develop our understanding of what is going on in illicit markets.
On the question of local insight into what is going on, we have recently added a new aspect to our fraud reporting gateway, which is the ability to specifically report worries about tax evasion on the high street. That was launched on 1 August. We have seen a really big response to that, which is really helpful because it helps us to identify hotspots and narrow down our work.
Q617 Dame Siobhain McDonagh: Does HMRC have any view on reforms to Companies House? At our previous hearings, we have heard a great deal about how organised crime becomes involved in shops and huge turnovers in people taking out leases on shops. Landlords are willing to give them to anybody prepared to take them because it means they do not have to pay the business rates, but clearly the people who are taking over shops are not bona fide businesses, as a layperson would imagine. It is so cheap to set up a business at Companies House and to turn over.
JP Marks: There have been a number of areas of focus there. You are quite right that the collaboration between Companies House, the Insolvency Service, us, local councils and police is key. There are different elements to it: co-ordinating enforcement, recovering money, improving policy, sharing data, better technology. The Government announced in the 2025 Budget £25 million of further funding over five years to tackle abusive phoenixism, which supported additional staffing for the Insolvency Service.
If it would help, we could just set out precisely the collaboration we currently have with Companies House. There is a lot of engagement going on all the time between the teams and I know that Companies House has been stepping through its own transformation, as you say, to make it more confident and assured of who is registering and to try to ensure that the system is working well.
Q618 Dame Siobhain McDonagh: How can it be when it is so cheap to register a company and when you can register companies from addresses nowhere near you? I have elderly residents who have told me that businesses that they know nothing about are registered at their address, let alone on the high street.
Jonathan Athow: I do not want to speak for Companies House, but I know it is putting in place an identity verification service. The ability simply to go on and create false names or false addresses is now a lot harder. There is an identity verification service being rolled out. Again, that is really for Companies House. We are happy to support it. We want to help build its capability because, as you say, it is a bedrock for incorporated companies and for identifying who we are dealing with. If we can help Companies House, we will. We have assisted before in helping it understand some of the risks and how it can improve its systems. I know there is a programme on identity verification, but it is not my responsibility. Perhaps we could ask Companies House to give you an update on where it is on that.
Chair: I think this is not the end of our work on this.
Q619 Dame Siobhain McDonagh: I know that Criterion Capital, which is a very big property company in London, seems to be involved with a group of people with student visas who set up businesses and become the leaseholders of shops in prime locations—just down the road in Whitehall—and they routinely then go bankrupt. The individuals concerned are clearly in no way able to run a legitimate business but walk away without paying any tax at all.
Q620 Chair: Is a policy discussion happening across Government on that? You are relying on Companies House—is it a good enforcement tool?
JP Marks: It comes back to Jonathan’s point about the investment that has gone into trying to improve that process of verification. The point is well made that this is one of the structural risks that we have in the tax system—the ease of incorporation and phoenixism—leaving us with a debt that is hard to pursue. There are a number of things that we have been doing to resolve that, including in terms of liability and getting upstream of that risk. However, the volume is such that it comes back to that high street intervention. The volume we will try to undertake this year will be more than last year and the capacity will bring on.
I also take the point that renewal of the high street needs to start in communities and to be led by councils, supported by the police, the Office of Fair Trading, ourselves and Companies House. It requires that multi-agency approach in communities across the country.
Chair: Thank you. As I say, I do not think this will be our final word as a Committee on that challenging issue.
Q621 John Glen: On Making Tax Digital, I believe HMRC anticipated that 864,000 individuals earning over £50,000 would complete their first quarterly return by 7 August, but almost half did not. Why do you think that is? Is it to do with the communications, the penalties not changing or awareness around needing the software? What is your understanding? I know it is only a month since that deadline passed, but it would be good to get your take on it.
JP Marks: All those factors are relevant. As you say, it is year one, there are no penalties, it is a new change and it is about awareness. We are pleased with the start MTD has made in terms of take-up, availability of software and awareness across the industry. We have some quarters to go before we reach the end of year one, and we need to improve the rates a bit. Jonathan is the SRO of the programme and he can give you the very latest numbers.
Jonathan Athow: I will take you through where we are. We think that awareness is quite high: about 70% of the first cohort are represented by agents, accountants, so we have virtually 100% awareness there. That is good enough. Software availability is also very good: over 130 products, including about 30 free or freemium products, so the software is there. Two things are challenging, one—
Q622 John Glen: On software, the NAO Report says that acquiring the software means a £757 million additional cost to businesses. Will you clarify how HMRC mitigates additional cost? How is that viewed through the process?
Jonathan Athow: That is a cost. We do a cost-benefit analysis and look at all the costs, including the cost to businesses, and the additional yield, the additional tax revenue. We will take all those things into account in our business case. The business case that was presented and that the NAO looked through will have had all those estimates in it, so we fully take account of that.
That brings me to the point I wanted to make, which is that this is a very big change. Many businesses are already using software to keep records in real time, but a lot of businesses do not keep records in real time. The story is of the carrier bag of receipts at the end of the year, but that is the sort of behaviour we are looking to change, because we think that is where a lot of the error comes from, from poor record keeping. For those individuals, it is a really big change, to ask people to keep records on that quarterly basis. That is part of the reason why we have not got more than the numbers we had—it is a big change, a big change that we are looking to make.
Q623 John Glen: For someone who has been operating at a very non-technical level for all their life—in their 50s or 60s—is it realistic to get that behavioural change? How are you helping people to adjust to it?
Jonathan Athow: We have put out a lot of guidance. As I said, about 70% of this group are already supported by an agent, so a bookkeeper or an accountant, and again one of the things we have seen that I have been really pleased with is that the representative bodies—the Chartered Institute of Taxation, the Association of Accounting Technicians and others—have put out some really good guidance to support people. The Low Incomes Tax Reform Group, who deal with unrepresented customers, put out some amazing guidance. Lots of guidance is out there, from us and from others, to help people, but it is a really big change, so we expect that that behavioural change will take some time to bed in.
As you said and as JP referred to, however, there were no penalties in the first year. We are moving to a new penalty regime where there is no financial penalty immediately: you get penalty points and then, after a certain number of points, you get a financial penalty, but in that first year we have said that there are not even any penalty points, because we recognise that it is a really big behavioural change. We want to encourage people to comply. We do not want people to worry about compliance in that first year. As you say, for people who have been trading in a particular way for a long time, they might need to put in place new systems or new ways of working, and we recognise that that is a significant undertaking.
Q624 Bobby Dean: A quick follow-up: is the penalty point regime only applicable to the Making Tax Digital regime?
Jonathan Athow: We are going to introduce a penalty point regime more generally, but it will vary according to what your obligations are: if you have quarterly obligations, which is Making Tax Digital, you get four points before you get a financial penalty; and if you have an annual obligation, such as for those who stay in standard self-assessment, you only have to get two points before a penalty. It is a penalty point system, but it is correlated to the nature of your obligations.
Q625 Jim Dickson: On customer interactions, which is important for people’s experience of and confidence in the service, you quoted at the beginning, Mr Marks, that you felt that that was going well, that for example 85% of customers are now speaking to an adviser when they wish to do so, and that that is the first time you have actually met that target for seven, eight years or so. How did you go about doing it? How can you sustain it?
JP Marks: How we went about doing it starts with supply meeting demand. That is one of the things that I discussed with the team pretty early on when I arrived, because my concern was that historically that was not always the case, and as night follows day, if supply does not meet demand, backlogs accrue. That was the first point. As chief exec, as far as I am concerned, we must always supply our customer service lines, so that supply meets demand. It currently does.
I am pleased to say that, as long as you get your forecasts and deployment right, you should then see the standard met accordingly in year one. A huge amount goes on underneath all that, of course, around conformance, adherence, shifts and all the product management, but that is the core of the customer service operation. Myrtle Lloyd, who we appointed as our chief customer officer last year, is doing a fabulous job with the team.
I think that it is sustainable. From the last data I have seen for the latest month, we are up at 89%, and the average speed of answer is below 10 minutes—a single digit. For me, that is what the baseline should be, and that is what the Committee and the public should hold us to account on. Our job is to make that sustainable.
It will obviously depend on a few factors. We still need to be able to afford the supply line as demand changes, so we will continue to make the argument that that is important, and we are confident that it is for now. But the nature of the demand line changes, and it is a function of whether we can shift the channel, support self-serve, reduce complaints, strip out the failure demand and have fewer chasing calls. Complaints, for example, are down a third compared with where we were this time last year. If we respond to letters faster and answer the phone quicker, people obviously do not chase us because they do not need to.
It is moving in the right direction at the moment, but there is a lot of complex demand change ahead of us: we have mentioned low-value imports, high-value council tax and surcharge, to name a few. We are really determined to build this up, because we want to improve trust in the tax system in this country, and we know that that starts from being a responsive service that people can connect with when they need to.
Q626 Jim Dickson: Looking at the first quarter stats for this year, they obviously bear out what you say, but it is still the case that almost half of callers have to wait for 10 minutes or more. That is presumably something you are not happy with and want to improve.
JP Marks: I would always prefer to see it in single digits, because people tend to abandon their call at around 10 minutes and ring back again, which is obviously very frustrating for them, and it is failure demand for us and bad service. As I say, we got it to about seven minutes in March, for example, and it was below 10 in the latest month. That would be more akin to about 90% of calls answered as a baseline.
I have one fact that I dug out because we are here, and because the Committee has quite reasonably challenged on when calls are waiting and then get cut off under the current system. In ’23-24 that was 56,000 calls, and for the year to date it is 374. That is still too many, but you can see the trend, and that is what we are working towards. We are now onboarding our new contact centre system, which will again be a leap forward. I am hoping that we will continue to see that trend reduced and take that frustration out of the system.
Q627 Jim Dickson: I was going to ask about the AI-enabled contact centre you are talking about. How will that actually change and improve the customer experience? Is there a chance I will talk to a non-human entity at the other end of the line? That could be frustrating.
JP Marks: The intent is to make sure that the customer contact on whatever channel resolves the enquiry at the first resolution, wherever possible. There is no point in having a self-serve channel that does not resolve the problem and then leads to a phone call.
We are working really hard on the development of the app so that customers can check their latest salary, look at their national insurance record, check their tax code and understand why there has been a change. As I say, we are really pleased about the app and the increase in usage, though there is more to do. Next year, we will put more functionality into the app, including the digital account for people to see all their correspondence. They will be able to see the history and understand any outstanding actions with us, and vice versa.
The objective is customer-centric digital services, but, to be clear, it is also more additional support for those that need it. We have recently announced the doubling of our grant funding for the voluntary community sector partners we work with, because we recognise that, for a cohort of our customers, contacting us is a challenge that has a level of anxiety to it. We want whatever channel—advocacy, extra support, telephony and self-serve—to be high trust and have higher satisfaction rates. They are moving in the right direction, but we still have quite a long way to go.
Q628 John Glen: I wanted to go back to dealing with missed tax and the new border target operating model, because there has been significant criticism from the EFRA Committee. What mechanisms do you have to try to improve that? I remember, even back in government in 2023-24, it was a very complicated system, and that Committee is obviously not very impressed with it. How will we see it improve going forward?
JP Marks: We were having this conversation earlier; I think Carol is best placed to talk about the future opportunities on transformation, but I can give a couple of proof points I look at to see whether the border is working as it should from a customs economy perspective. Following the exit from the European Union, a lot of work has gone on to establish the Windsor framework and put in place the systems. When we look across the numbers of customers trading through the border, the volume of customs declarations and the total value of imports and exports in 2025, which was £1.1 trillion, the flows through the border are healthy. The border is available 24/7 as an operation. It is heavily intermediated and the CDS system is working well, but there are absolutely opportunities to leverage AI and improve it. Carol can say a bit more.
Q629 John Glen: It would be good to focus the answer on what we can do to improve it, because we are familiar with all the structures and theory around it. What can we do to make it better and improve on all these leakages and the lack of responsiveness when there is a problem, as there was last year?
Carol Bristow: It is worth flagging, as JP mentioned, that the core availability of services within the border is very high. After a very profound period of change as a result of the UK leaving the EU, we now have 99.9% availability of services and we have very strong and effective real-time operational support for goods that get stuck at the border, because they need to be able to move. The overall level of service is extraordinarily high and is dealing very effectively with large numbers and large numbers digitally—as JP mentioned, this is a largely digital automatic service that works effectively for trade.
There is a huge amount that we want to improve in the context of how we can reform the border. Frankly, the challenges hitting the border downstream are likely to be way bigger and broader than the ones that faced us as a result of EU exit. We have seen a profound shift in broader global use of trade policy, tariff changes, widening of sanctions regimes internationally and a massive explosion in e-commerce, leading to low-value imports, which we are in the middle of introducing, as the Committee is aware. There has also been a massive expansion in the technology landscape, which is rapidly evolving, and a rise in organised crime, which is becoming increasingly sophisticated. Some of the challenges that the border faces are much broader, and our focus is on making sure that we are dealing with the regulatory and security concerns effectively.
John Glen: Can you make it real for those who might be watching on the changes in smuggling and prevention? How are you using new technology, such as drones and so on? I was listening to the conversation with Ms Minns about the tobacco side of things, and there was quite a wide variance between what one of you asserted is the percentage that is illicit and what other people observed—I think it was 15% to 45%. Action on Smoking and Health has asked whether HMRC will commit to commissioning an independent review of that methodology. In order to have confidence in what is being missed, it seems sometimes it would be better to go outside your terms of reference. Do you have any comments on that specifically, and more broadly on the trends in smuggling, drones and so on?
Jonathan Athow: On the measurement point, as I mentioned, we are commissioning waste water analysis. That will be a check on the different sorts of analysis. It will look at metabolites of tobacco in waste water. Various academics have used that approach to estimate the prevalence of smoking. It will not rely on surveys or anything like that. It will measure a more objective stat.
John Glen: Hard data?
Jonathan Athow: Hard data. Obviously there will need to be some assumptions in that modelling, so it is not completely straightforward, but we think it will give us a way of benchmarking the different studies out there. We recognise that that part of the tax gap that is highly uncertain because we rely on the fact that people under-report, but has that under-reporting changed over time? We assume that under-reporting is constant.
Q630 John Glen: As a Committee, we get that 15% and the 45%, but how do we make sense of it?
Jonathan Athow: We want to invest in the waste water study to give us a more objective benchmark that we can then use to go forward. I want to reassure you that we are really not complacent about measurement here.
Q631 Chair: On a small technical point, does the waste water just collect tobacco that is smoked? What about the chew pouches and the nicotine gum?
Jonathan Athow: I am not an expert on this but, yes, there are different ways in which nicotine is consumed and I think there are different traces—different metabolites—from those. The analysis will allow us to give some overall estimate to benchmark—
Q632 John Glen: So your answer is basically that you will not do an independent inquiry at this point, you will see what that analysis yields and whether it gives a more authoritative figure, and what the industry thinks of it.
Jonathan Athow: Indeed. If we do the research, we will publish it and it will be open for people to scrutinise, and for ASH and others to look at.
Q633 John Glen: Can I come back to you, Ms Bristow, on what is happening in terms of trends of smuggling and what you are doing? It would be good to make it real for people and to understand what you are targeting and what the big problem is out there.
Carol Bristow: If we use the example of illicit tobacco, as we mentioned there is a 14% to 15% tax gap. We think that has come down quite significantly through concerted efforts over 20 years. There is always the question of how effective and sophisticated organised criminals are getting in how they are increasing the risk. One challenge we face from our data and risk-based intelligence is getting as good a handle as possible, as far up the supply chain as possible, to understand what is happening. A lot of that is human intelligence coming from criminal gangs, from overseas jurisdictions and from things that will feel quite traditional and not very AI-centric in a technological world. They are married with a lot of exploitation of technology in this space.
We do a lot of analysis of trends. When our interventions hit, what is the kind of commodity, the kind of route, the kind of carrier, the kind of haulier? How do all those things add up to a risk profile that enables us to target and inform our intervention next time, and to try to make it more and more effective? We work closely and in collaboration with Border Force, which is very interested in making the strongest case for the use of technology at the border, such as more use of scanners to be able to scan goods coming across the border more routinely without disrupting legitimate trade.
Sorry to use this visit one more time, but when some of us were in Dublin recently we saw some very effective use of scanners on the port side. We are doing a lot of work in a range of intelligence functions and exploiting technology, including at the guidance and support end of the market, by using AI and chatbots in all our systems so that as much of it is automated as possible. It is a blend of a number of things. At the border 1.9 billion illicit cigarettes were seized last year—1.5 billion by Border Force. Some of the traditional seizures would demonstrate that we are being effective in this space. We always want to do more.
Q634 John Glen: Ms Ciniewicz, did you wish to come in?
Penny Ciniewicz: Yes. When you look at the trend in criminal attacks over time you can see that we are reducing the threat from those attacks and containing it. We do, as Carol says, use a huge range of techniques—data, insight, intelligence—and we have a huge range of powers as well, including covert and intrusive powers that we use in line with lots of safeguards to understand what is going on. As I said earlier—
Q635 John Glen: Do you have all the powers you need?
Penny Ciniewicz: We do have a huge range of powers, and we use them to good effect, I think.
Q636 John Glen: No, I didn’t ask that. I asked whether you have all that you need.
Penny Ciniewicz: We are not looking for any extra powers at this point, no.
Q637 John Glen: Now is the time to ask.
Penny Ciniewicz: We are not asking—we have a very broad range of powers, and what we intend and try to do is use that full breadth of national and international collaboration to really understand what is driving serious organised crime. The top of the tree in a tobacco context would not necessarily be the same organised crime group that was delivering on the streets, and we keep track all the way through those chains. We gather insight and intelligence so that we can disrupt and interrupt that trade.
John Glen: Thank you for your answers.
Q638 Dame Harriett Baldwin: I am very worried about the number of pensioners who are going to be interacting with your service, because the numbers are going to go up substantially because of the freezing of the tax-free threshold. I was pleased to hear that 7.6 million people are now using the app; that is real progress. Ms Ciniewicz, do you know how many of those would be pensioners?
Penny Ciniewicz: I am not sure that I am the person who can answer that particular question.
Jonathan Athow: I do not think I have the figures to hand on that.
JP Marks: We know that we have seen some good take-up on app usage. To the end of quarter two of 2025-26, we had 88,000 new users in the 65-plus age range who accessed the app for the first time, which was a 34% increase.
Q639 Dame Harriett Baldwin: So that is 88,000 out of the 2 million.
JP Marks: Yes, for that time period. I am very happy to write to you.
Chair: It would be helpful to know the cohorts that are taking it up.
Q640 Dame Harriett Baldwin: Would it be a fair assumption that pensioners would be less likely in this cohort?
JP Marks: Yes.
Q641 Dame Harriett Baldwin: Mr Athow, the new Chancellor has confirmed that the basic new state pension, once it exceeds the tax-free allowance, is not going to be taxable. Have you figured out how you are going to work around that?
Jonathan Athow: The Chancellor has indicated that the arrangements for that will be set out in the Budget. We will be working—
Q642 Dame Harriett Baldwin: So you have worked it out, but it will not be announced until the Budget?
Jonathan Athow: The Chancellor has said that the Budget is when that will be set out, and that is what we are expecting.
Q643 Dame Harriett Baldwin: But you have come up with a solution?
Jonathan Athow: We are advising Ministers on that, and we will continue to do so and think about how we make that work as effectively as possible. The end objective was very clearly set out by the Chancellor.
Q644 Chair: Just to be clear, because sometimes options are presented to Ministers: this is quite a technical thing, so are there options or is it one clear approach that is going to deliver?
Jonathan Athow: There are a number of ways in which you could do this, and choices for Ministers to make about exactly how they do this and how they target it. We will put those options and make certain that, once that has been agreed, we will implement those.
Q645 Chair: Okay, so there are still options.
Q646 Dame Harriett Baldwin: Ms Ciniewicz, I think we accept that the number of app users among the pensioner cohort will probably be somewhat lower than the population at large. I am interested in a case that I received in my casework recently—I do not want to focus on the individual case, but I want to try to generalise some points from the issues that surfaced in it, because my constituency’s demographic has quite high numbers of pensioners; that has shown up in my casework. One case was a pensioner in her mid-70s who had received a clear assessment from HMRC every year. She suddenly got a demand for a past year—something like two or three years ago—based on bank data. Are you suddenly getting a lot of cases open retrospectively because you are now receiving more information on savings interest from banks? Is that something that is happening?
Penny Ciniewicz: We are certainly using bank and savings data more than we used to.
Q647 Dame Harriett Baldwin: So you have backdated data that is coming in, and you are reopening past cases?
Jonathan Athow: If I could come in here, I would not say that it is reopening.
Q648 Dame Harriett Baldwin: How long have you been using the data?
Jonathan Athow: For about ten years now, banks have sent us data on the interest people have received. We will put that together with other information we know. If you are a pensioner, say you have savings interest in a state pension from DWP; DWP will tell us how much pension you are getting, and we will then understand how much interest you are getting. If that is below the personal allowance, we do not contact somebody, but if it is above the personal allowance, we will write to them saying, “There is this bill that you need to pay.”
Q649 Dame Harriett Baldwin: Are you suddenly doing more of that retrospectively?
Jonathan Athow: There are two things: the state pension has been increasing relative to the personal allowance, which we have already discussed; and two or three years ago interest rates went up, meaning more people were getting more interest. In the past couple of years, therefore, we have seen that, as we do the end-of-year reconciliation—which normally happens in the summertime following the April—it is for the year before.
Dame Harriett Baldwin: Okay, so that could surface—
Jonathan Athow: That would then surface, but only when we get the data.
Q650 Dame Harriett Baldwin: The law-abiding taxpayer would think that they had settled their accounts, but—
Jonathan Athow: Indeed. No one has done anything wrong; it is merely that there is a lag in the system, because we do not know what interest people have until the banks tell us, and we then have to put that into the system. For some people who are not used to dealing with the tax system—you were talking about them—they do not know that there is an end-of-year reconciliation when—
Q651 Dame Harriett Baldwin: You will get more and more of this. This particular pensioner ran into the 45-minute cut-off. Then, apparently, once they had figured out what was going on, they settled that amount as well, but several months later they got a demand from a law firm. I just wondered, Ms Ciniewicz, if you are using law firms more and how often you reconcile that data. This person had settled several months before, but was then getting demands from a law firm. Is that something that you are using more, particularly with regard to pensioners?
Penny Ciniewicz: That sounds quite unusual to me and not something I am really—
Chair: It sounds as though you should look into that individual case.
Penny Ciniewicz: If you want to share something separately, Dame Harriett, we are happy to come back to you.
Q652 Chair: But as a general rule, do you outsource chasing a debt to law firms, or is it something that could be a scam? Do you have any message for taxpayers if that were to happen?
JP Marks: First, please do share the case, Dame Harriett, and I apologise that your constituent has had a difficult experience. Genuinely, let us make sure we have learned from that. We can also come back to provide some reassurance. I am not aware of some big historical look back at savings interest data to reopen cases; as Jonathan said, it could be a lag, but we can check that point.
On debt, it is the case that the Government have funded additional capacity in debt-collection agencies to support our debt operation. Debt will only be passed to a third party after a whole bunch of checks and safeguards have gone through, so it is possible that in that situation, the customer resolved the debt with us, but that had not yet reconciled, so a debt collection agency—
Chair: So it is not completely beyond the realms of—
JP Marks: It is not impossible, but it would not have been a—
Q653 Dame Harriett Baldwin: Am I right to be worried that more and more pensioners across Great Britain and Northern Ireland are going to be getting letters from debt collection agencies and suddenly interacting with a tax system that they have previously not had to worry about?
Jonathan Athow: There are going to be more interactions with pensioners, and more people will be brought in. As I said, there are particular challenges. If they have a private pension, we would collect the tax through that, but no PAYE is worked on the state pension, so that means we have to ask people for the money. There is going to be more of that, but we can also write to you about how the customer journey works. We do use debt collection agencies, but that is only a last resort—the idea is not to hand people straight over. We can explain the process and hopefully give you reassurance on how that will work. We write to more pensioners to say that, because of their pension and interest, there is tax to be charged.
Q654 Dame Harriett Baldwin: The Committee would be interested in a letter summarising that journey, but also the numbers that you are dealing with and the projections given. I think that everyone accepts that more pensioners will be affected by this.
Jonathan Athow: We can certainly send that letter.
Q655 Chair: The crossover will be next spring. There are also pensioners and other people on low incomes who will have to pay tax if they trip over slightly, but other pensioners will not. I appreciate that advice to Ministers is private and that a policy decision may be made, but is it fair that some people on low incomes will pay tax, whereas some pensioners will be just above—
Jonathan Athow: That is a question you would have to ask Ministers once they have announced their policy.
Q656 Chair: Are there technical approaches to change that? Simplest would be to raise the allowance, but that is a big policy decision. How technically easy is it to divide those up? Pensioners by age, I suppose.
Jonathan Athow: I think we are in danger of speculating about what might be in the Budget, and I hesitate to do so.
Q657 Chair: Mr Athow has a hospital pass, “The Budget is coming”. We will certainly raise it with Ministers. I want to move on to ISAs—this is technically quite challenging. The policy decision was made to change the ISA balance. From next April, £12,000 can be held in a cash ISA and £20,000 in an investment ISA. The split is £12,000/£8,000, basically, or you can have £20,000 in an investment ISA. One of the challenges was that after a lot of discussion, stocks and shares ISAs will still be able to invest 99% of their ISA in cash-like assets such as money market funds. Does that not blow a hole in the whole idea of encouraging people to invest?
JP Marks: There has been a lot of engagement with the industry to implement this in a way that hopefully will achieve the objectives that Ministers set out. As you say, Chair, the intent of the reduction in the cash ISA limit to £12,000 for those under 65 was to encourage retail investment and drive better returns. We will be laying the regulations that underpin those changes imminently. The engagement with industry has been such that, where there are cash holdings in the equity ISA, there is a 22% charge to disincentivise that.
Q658 Chair: We know the technical stuff, but it rather drives a coach and horses through it, because you can hold 99% in money market funds and still not have the penalty charge. You only need 1% invested to make sure it counts as an investment ISA. The whole point was about having it as investment and not in a cash-like setting. Does that not obviate the whole policy?
Jonathan Athow: There has been extensive consultation. There has been the challenge of how you practically define these issues. I will not go in to the technicalities, but Ministers have taken the view that this is a sensible place to draw the line, and I think that has broadly drawn industry support. We have special arrangements for people who hold cash in equity stocks and shares ISAs, because we know that sometimes the money will need to be held in cash before it is then invested. We think we have a workable solution that broadly achieves the Minister’s aims.
Q659 Chair: If someone breaches it, are you confident that with the timeframe involved—regulations have not even been laid—the industry will be ready to differentiate? Do you expect products to be withdrawn from the market because they will not be ready, and to make sure they have it the right side of the line for investors?
Jonathan Athow: We have had extensive consultation, formal and informal, with the industry. There was a lot of concern from the industry about how we drew that line between stocks and shares and cash ISAs. We think we have worked with them constructively and given clarity.
Q660 Chair: They will still have to change their systems.
Jonathan Athow: They will still have to change their systems, but, due to that early engagement, hopefully it is not just waiting for the regulations. They know what our intentions are. They know where we have set our dividing line between stocks and shares and cash, so I do not think there is any reason for particular concerns. Obviously, there is a wide variety of providers out there. One benefit of the ISA market is the large number of providers. I cannot speak for all those providers, but we have had a lot of positive engagement and we are confident in the delivery timetable.
Q661 Chair: What extra information will you need from ISA providers? You will get the bank interest and information, but people could have ISAs in lots of different places. Will there be extra requirements on ISA providers?
Jonathan Athow: We are introducing a digital reporting requirement. Traditionally the ISA regime was paper-based—or when it was introduced, it was paper-based—and we are digitising that. There is now flexibility to hold more than one cash ISA. No single ISA manager can know exactly what everyone is doing, so we have a digital service that we think will enable a better understanding of where people might be breaching the limits and allow us to therefore take action.
Q662 Chair: Is that in real time, or will there be a lag on that information? We might be dealing with several different providers.
Jonathan Athow: There will be a lag, but I cannot remember the exact parameters. I think we are looking for quarterly data, so it is more frequent than annual. That will allow us to intervene in-year, but I would need to double-check the facts.
Q663 Chair: What would be the penalty if somebody breached the ISA limit?
Jonathan Athow: Normally we would expect an ISA manager to correct that. With a particular provider, we would expect them to take money out to make certain it is not exceeding the limits, but there would be tax charges on top if people were breaking the limits.
Q664 Chair: A tax charge on the bit over the limit or the whole amount?
Jonathan Athow: Yes, on anything over the limit.
Q665 Chair: Then there is a 22% flat rate of tax on interest paid in stocks and shares ISAs. Does that introduce a tax planning opportunity for higher earners?
Jonathan Athow: I do not think so. Again, we have a limit within the system, and we think that is a reasonable approach.
Q666 Chair: So you think the £8,000 limit will mitigate that.
Jonathan Athow: Yes, it will mitigate it. Again, not many people use their full £20,000 allowance. Even at £12,000, we are not expecting huge numbers to be using the full allowance. That is quite a large amount of savings for an individual, so we are not concerned about that at the moment. As we get better data through the digital service, we will understand what the risks are, and if we have to make changes in the future, we will make changes.
Q667 Chair: To go back to Dame Harriett’s point, your bank interest comes as a reconciliation. You know that because you are tax experts, but average constituents perhaps do not appreciate it, and there are all the extra things like pensions hitting the limit—
Dame Harriett Baldwin: Or not being able to get to a bank branch.
Chair: Indeed. That is Dame Harriett’s and Dame Siobhain’s particular bugbear, and obviously it concerns many constituents. So you have these changes. You now have the digital information on bank interest—you have always had that, but it is more efficient—and you are going to have digital information on ISAs, so there could be quite a lot of people who find that they breach something and owe HMRC money. Have you thought about how you will handle the relationship with people who are not intentionally doing anything wrong but perhaps do not find out until after it has happened?
Jonathan Athow: Some of this we do not know yet because, as I said, our digital reporting for ISAs is not there. We will need to see what it looks like in real time. You are alighting on a really important fact, which is that we would like to get more data from third parties so that we can get people’s tax right in real time. We want to have bank and building society interest so that people do not have to report it to us through self-assessment. We can do it for them. We would like to do more of that. We think that is simpler, assuming we can match the right data to the right person. We are improving the quality of the data that we are getting. We are now asking for tax identifiers with some of that. That will allow us to automate those processes more. If we get that right, we will therefore reduce the number of phone calls and concerns.
We think there are some real opportunities, but it also will allow us to identify—particularly on digital ISAs—where there have been areas of non-compliance that we have not been able to see before. Our approach will always be to educate people. A lot of the problems that we see are not a deliberate misuse of the system; it is people not understanding the requirements. We will need to work out whether we have the right guidance and whether we need to do more education. That will be our first approach.
Q668 Chair: As you say, the limits are quite high for most average savers, so you are not expecting a very large swell of people.
Jonathan Athow: Indeed.
Chair: Thank you very much indeed.
Q669 Dame Harriett Baldwin: I just want to touch on the online marketplace consultation and VAT compliance. I note that, over the summer, the Prime Minister announced a reduction in business rates for pubs, clubs and music venues. The announcement that came with it said that it was going to be paid for by the online marketplace change. Is that fair to say? As I understand it, that was originally due in 2029, and now it is coming in at the end of 2028. Talk me through the maths, Mr Marks.
JP Marks: You are right: the announcement had the connection of the two rates. Online marketplace reforms were first introduced in 2021. The OBR certified that the annual revenue from that is £1.8 billion. The consultation has been looking at opportunities to reduce VAT losses, particularly for companies that are abroad but registered in the UK, which try to use online marketplaces. The team are now digesting the responses to the consultation. There will be advice to Ministers, and we would then expect something, as Ministers decide, in the Budget. The detail is not finalised. Obviously, we need to take care and reflect on how to manage that in the context of the VAT threshold. That is the consultation that has closed, and it builds on the—
Q670 Dame Harriett Baldwin: But if I understood it correctly, it is the same pot of money. The business rate cut came from a pot of money that will not exist until you have implemented that by the end of 2028.
JP Marks: We will confirm the timetable for the implementation of any change to the online marketplace regime if it is agreed in this Budget.
Q671 Dame Harriett Baldwin: It was said yesterday at Treasury questions that it had been moved forward from 2029 to the end of 2028. Presumably, Ministers are quite keen to see it as quickly as possible.
JP Marks: Yes.
Jonathan Athow: Yes, and we will advise Ministers on the nature of that as well as the timing and the implementation. I think various Committees have alighted on this before. This is an area of active work where we have continued to think about how we enhance the system, building on what we have already done.
Q672 Bobby Dean: I am looking for a quick update on trade sanctions. When we spoke to you in February, you had, I think, 30 live criminal investigations. How many do you have currently? How many convictions have you had over the 2025-26 period?
JP Marks: To make sure that we answer your question precisely, we should probably commit to writing to you on the number of criminal investigations. I have some data here about the number of detentions, seizures and voluntary disclosures. We have just done a large compound settlement this week, which you may have seen. Carol has the details on that. We issued 167 warning letters with regard to sanctions in 2024; in 2025, combined, there were 230. To an extent, some of those will be live cases that have yet to reach criminal prosecution, if you like, but we have a pipeline of cases and a compound settlement agreed this week that, I think, is the largest we have ever done.
Carol Bristow: It is our largest compound settlement to date. That was announced yesterday; it is for £7.5 million. That was about a breach of the Russia sanctions.
Q673 Bobby Dean: Please do follow up with the figures. It would also be good to understand the number of investigations that are triggered via self-reporting versus you identifying it. What proportion of investigations are triggered by people self-reporting versus ones you have identified yourselves? Without having the figures to hand, do you have any general comments on that?
Carol Bristow: I do not have the figures immediately to hand about the proportion. We encourage businesses to self-report as much as possible. The Russia sanctions have been in place for a long time, but our expectation is that businesses understand how those Russia sanctions apply. We still see very strong evidence of companies finding that they have inadvertently breached, often through complex global supply chains or a record that was not kept appropriately. They will come to HMRC, and in those circumstances we would tend to use compound settlements to reach an agreement and a financial settlement. We encourage that, and in recent months we have seen two Russia sanctions compound settlements. We have also seen a very big strategic exports compound settlement. We are seeing cases coming through that are evidence of self-reporting having the desired effect.
We have also seen a criminal prosecution against somebody who was seeking to export luxury goods to Russia. That is our first criminal prosecution against the Russia sanctions. We have some examples of a clear effect of our activity coming out. I can certainly commit to write to the Committee about exactly what we are seeing on numbers in more detail.
Q674 Bobby Dean: It would be good to get more detail, because a theory in other areas of sanctions enforcement is that often the capacity of the state is limited, and so there is quite a heavy reliance on voluntary or co-operative investigations, with companies that have good will complying, fessing up and paying their dues if they make a mistake. There is not so much resource dedicated to finding people deliberately trying to evade, who are probably at the more aggressive end of things. It would be good to get some perspective on that. It is probably best that I hand back to the Chair and we get some more correspondence in writing, but that is the general thing I want to look at: what the numbers are and what proportion is active investigations chasing people who are not coming forward themselves.
Carol Bristow: Yes.
Q675 Chair: You seem quite confident that the self-reporting level is high.
Carol Bristow: We would actively encourage firms to do that, and we are seeing firms coming forward and making that case. Certainly, I reassure the Committee that we investigate cases to a criminal standard in arriving at a compound settlement. Those are complex cases, often through very global and complex supply chains, so we do go through very clear and long-standing ways of making sure that they are properly investigated to make sure that behaviour was inadvertent and they are not using self-declaration to somehow hide something else.
It is absolutely fair to say that we are also increasing that use of deterrence and, frankly, teaching moments for the ability to use self-declaration. We are now naming. We have recently changed our policy, so if you agree a compound settlement with us, we name you with your agreement and the amount that you have paid. That has been a shift to try to give a stronger push to the market that people should self-declare. Given the £7.5 million compound settlement this week, we will use that actively to encourage firms to self-declare. We see that as a very cost-effective but compliant way of getting to the right result.
Q676 Jim Dickson: Mr Marks, you identified at the beginning one of the challenges when you were asked by the Chair about the positives as well as the challenges of the new low-value imports regime, in which duty is going to be charged on low-value items. Can you tell me how preparations are going for that and whether you are learning from other jurisdictions that have introduced it about what we might do here?
JP Marks: Carol is leading the implementation, but I will start and then she may want to add a bit more. We are on track for implementation of LVI from October 2028. The volumes are expected to be significant. The latest estimate, in 2024, was around 600 million consignments. The challenge is the rate and growth of that volume. It is increasing significantly; it tripled between 2021 and 2024. So there has been significant growth in the volume, and obviously there is some time to go before October 2028. None the less, we are confident in delivery. Carol’s team are doing a huge amount of work to keep us on track in that regard.
In the consultation, we had 165 responses from businesses and customers across industry. When things are taken together, the OBR scores over £1 billion of revenue for this. As we said, we were together in Ireland last week, having a conversation about what the European Union is doing. Obviously, it has a different starting point from us for LVI. We want to create a system that will work well for UK trade, but also for UK traders who are interacting with the European Union. The team have also been learning from the experience in the States particularly. We want to get the balance right between speed of implementation and making sure that the system is safe and secure and that the digital experience is intermediated as much as possible and works well. Carol can say a bit more on the programme and confidence levels.
Q677 Jim Dickson: As you do, Ms Bristow, can you talk about the specific way in which you are going to detect the low-value imports in order to be able to charge the duty on them?
Carol Bristow: I certainly will. As the Committee is aware, we are planning to introduce the low-value imports regime. The Government made the announcement at the recent tax update, rather earlier than the Budget 2025 announcement suggested. We are on track to deliver this change in October 2028. We are always on the lookout for ways in which we can make sure that we are delivering this at the right pace, but also making sure, for what is a very complex, high-volume change for a series of intermediaries, that they also have time to make the necessary changes to their system—sometimes they are commercial suppliers—to be able to work effectively.
It is worth noting that the UK is not simply removing a relief from an existing system; it is creating a new customs process for low-volume imports. That means that this system will collect data on high volumes of goods moving across the border in post and parcels. It will then allow us to risk-assess those on the basis of the documentary evidence that we have from overseas sellers and online marketplaces, and to make interventions to make sure that the relevant duty is being paid.
The Government consulted after the announcement. In July 2026, we announced the response to that consultation and draft legislation, which sets out the overall design of the scheme. I think this comes to your question about exactly how it will work in terms of securing the data and the revenue.
Essentially, overseas sellers or online marketplaces that are facilitating sales into the UK will be required to register for the LVI system. They will then, before any good is moved, be required to fulfil customs declaration line-by-line data about exactly what is moving, so that those goods can be checked before they move. The movement of the physical good will tend to happen by a parcel operator, and they will be required to provide a reference to HMRC that will connect the physical good to the customs declaration, so that we can check that the physical good is the good that has been declared by the overseas seller or online marketplace. The overseas seller or online marketplace will then be required to pay over the duty to HMRC in line with that customs documentation. They will do that quarterly, which mirrors the payment mechanisms that exist for these goods in relation to VAT.
The purpose is to ensure that before goods move and are imported into the UK, customs declarations can be checked. We will be able to match the individual physical good to the data that we hold. The overseas seller will be required to pay in line with that documentation, and we will have data that enables targeted interventions to be able to check. Part of the programme of work that we are doing is with Border Force and compliance colleagues more generally to ensure that the case for this includes resources to be able to follow up those targeted interventions. Both Border Force and HMRC will have additional compliance officers to be able to check those goods to make sure they are in accordance with the customs declaration data we have.
Q678 Jim Dickson: Thank you; that is helpful. I have two final questions. First, is there any support or help for small businesses in the UK that are significantly affected? Secondly, do you anticipate the dumping of goods as we lead up to the regime coming into force, and therefore some risks for businesses from the changeover?
Carol Bristow: That is definitely one of the risks on our radar. Certainly, it is one of the things that we are conscious of in speaking to EU member states. We were speaking to the Irish last week and are speaking to others to find out what their experience has been, because, as JP mentioned, the EU had a different system for low-volume imports. They already required customs declarations for each of those goods, which meant that although their system is designed to be in place on the same timetable as ours, in July 2028, they were able to introduce a transitional arrangement of a flat-rate fee because they already require customs declarations. That happened on 1 July; we are now in close contact with them to see what they are seeing in terms of volumes and what is happening to trade patterns. We will be keeping a close eye on that, because there are lots of opportunities for us to learn. Forgive me: you had a prior question.
Q679 Jim Dickson: Yes, it was about whether there was any assistance available for businesses in making the changeover.
Carol Bristow: We are very mindful that the design of the scheme places most of the burden on large fast-parcel operators and overseas sellers, but there is a long tail of businesses that might be impacted, particularly in a fast-growing industry. We are focused on making sure that all businesses, including those that might be entering this market, have good support from HMRC. We have very strong and constructive relationships with the trade and border industry, and we will be using them to ensure that we are very clear about how this might affect trade and traders.
Q680 Chair: As it comes in, there will be lots of questions about the stickiness for customers as well. Anyone who has ever tried to deal with a package that requires customs payment knows that it is a very slow and clunky process for an individual.
Carol Bristow: It should not have an impact on the consumer, because—
Chair: It should be done by the carrier.
Carol Bristow: It should be done by the carrier, and it should be done by the seller. There will, of course, be an impact on how much of that cost will be passed on to the consumer, although the Government’s current estimates show that they think the impact on inflation will be negligible. Again, we are keeping a very close eye on the consumer impact.
Chair: As a Committee, we will certainly be watching that.
Q681 Dame Harriett Baldwin: I have a quick last question. Mr Marks, you mentioned at the beginning that the council tax revaluation in Wales has been completed on time and on schedule. If a new Chancellor came to you and said, “How would I do this for England?”, what would you say the timetable would be?
JP Marks: That is a good question.
Dame Harriett Baldwin: I would like a good answer.
JP Marks: It is a significant undertaking. I would have to double-check, but the Wales reval has been years in the planning process and implementation. I think it goes live in April 2028, so there is still some time to go, but to date the Valuation Office is on track with the reval process. They are using their models and collaborating well with the Welsh Government. When that first started as a policy proposal and underwent parliamentary scrutiny, it would have been years back. I do not know, Jonathan, if you know—
Q682 Dame Harriett Baldwin: Yes, but let us return to the question that I asked; you are doing a very good job of answering a different question, Mr Marks. If a new Chancellor asked you, “If I wanted to do this in England, how long would it take?”, how would you answer that question?
JP Marks: I would look at the experience from somewhere like Wales to see what good looked like in terms of community engagement, building a consensus around the approach and how to get to reform that could be implemented safely and well. I think that is what the Welsh Government have done well.
Chair: So you are saying years.
JP Marks: I think it is years, not—
Dame Harriett Baldwin: So it is not something that can be scored in this Parliament, then.
Chair: From what you have said, Mr Marks, I think that has answered the question.
JP Marks: It would certainly be pretty tight in this Parliament, yes.
Chair: I thank our witnesses very much indeed. We covered a range of issues: the tax cap and compliance sanctions; customer service, which is always an important issue for our constituents; pensions and ISAs; and council tax revaluation. I thank John-Paul Marks, the first permanent secretary; Jonathan Athow, the director general for strategy and policy; Penny Ciniewicz, the director general for customer compliance; and Carol Bristow, the director general for borders and trade, for their time and for answering our questions.
The uncorrected transcript of the session will be available on the website in the next couple of days. I thank our colleagues at Hansard, and our colleagues at Bow Tie for the broadcasting.