HMRCSR0001
Written evidence submitted by Pioneering Solutions Limited
Inquiry to properly examine the performance of HM Revenue & Customs in 2022-23, how it is being affected by the current economic conditions, and the progress it is making in tackling error and fraud.
Monty Jivraj says HMRC has a moral duty to reclaim the billions lost to tax evasion and fraud. Here’s how.
HMRC has a moral obligation to pursue fraud and maintain the integrity of the tax system. A just and equitable society is built upon the principle that dishonesty should not create an advantage. Here’s my view of what HMRC should be doing to prevent fraud and maintain the integrity of the tax system:
1. Strengthening controls: HMRC should implement robust controls and oversight mechanisms to prevent and detect instances of tax avoidance and evasion. This involves leveraging technology, data analytics, and risk assessment tools to identify potentially fraudulent activities.
2. Legal reforms: Collaborating with lawmakers to enact comprehensive tax reforms can close existing loopholes and make it more difficult for individuals and businesses to engage in tax evasion and avoidance schemes.
3. Public awareness: Launching educational campaigns that raise awareness about the societal consequences of tax fraud can create a culture of accountability and discourage dishonest practices.
4. Collaboration and partnerships: HMRC should work closely with financial institutions, industry experts, and international counterparts to share information and strategies for combating tax avoidance and evasion on a global scale.
5. Enhanced enforcement: Swift and decisive enforcement actions against those engaged in fraudulent activities will send a strong deterrent message and underscore HMRC’s commitment to be pursuing fraud.
6. Poor customer service: The understaffing crisis has taken a toll on the quality of customer service provided by HMRC. Taxpayers seeking assistance often face long wait times, delays in responses, and a lack of personalised attention. This not only frustrates taxpayers but also hampers their ability to navigate the complex tax system effectively.
7. Service Delays: One of the significant issues faced by taxpayers was the prolonged waiting time for responses from HMRC. These delays often led to compounded financial stress for businesses and individuals awaiting critical decisions.
8. Inefficiencies and backlogs: The shortage of staff has led to a backlog of cases, hindering the agency’s ability to process tax-related matters efficiently. From resolving disputes to processing refund claims, delays and inefficiencies have become commonplace, further straining the taxpayer experience.
9. Technological Glitches: The adoption of new digital systems and technologies, while a step in the right direction, was plagued by glitches, causing frustrations and sometimes financial inconvenience.
10. Compliance challenges: Adequate staffing is crucial for enforcing tax laws and regulations. An understaffed HMRC may struggle to effectively monitor compliance and carry out audits, allowing non-compliant taxpayers to slip through the cracks.
11. Employee burnout: The burden of understaffing falls heavily on the existing workforce, leading to burnout and decreased morale among employees. Overworked staff may struggle to maintain accuracy and quality in their work, potentially exacerbating the agency’s challenges.
12. Ambiguous Communications: There were reports of miscommunication, particularly around new tax guidelines and regulations. The lack of clarity sometimes resulted in inadvertent non-compliance by taxpayers.
13. Tax revenue loss: One of the most glaring consequences of understaffing at HMRC is the potential loss of tax revenue. Unfilled positions and overburdened staff can lead to delays in processing returns, conducting audits, and addressing compliance issues. This, in turn, can open the door for tax evasion and fraud to go undetected, resulting in substantial revenue shortfalls for the government.
14. Detection Capabilities: While HMRC integrated advanced data analytics tools, there were instances where these tools generated false positives, causing undue distress to compliant taxpayers.
15. Fraud Prevention: Some significant fraud rings managed to exploit loopholes in HMRC's systems, indicating areas that require stronger security measures.
16. Response Time: In several instances, even after errors or fraud were identified, the response and resolution times were protracted, allowing the culprits to evade penalties or deepen their fraudulent activities.
To rebuild trust and protect taxpayer interests, HMRC must take proactive steps to strengthen controls, collaborate with stakeholders, and raise public awareness. Only through a comprehensive and unwavering effort can HMRC restore faith in the tax system.
HMRC's strategy seems skewed. On the one hand, they claim to prioritize intricate, high-value cases. Yet, in the fiscal year 2020-21, penalties were imposed on 184,000 individuals earning below £12,500. There's a paradox here. While higher income brackets contribute the lion's share of taxes, they also have the means for evasion. Are HMRC's strategies cognizant of this dichotomy?
The Chancellor's allocation of £280 million to combat benefit fraud raises questions about its comparative stance on tax evasion. The public deserves transparent insights into HMRC's strategy.
It's evident that compliance activities are bottlenecked by resources, not the volume of investigable cases. A holistic overhaul is needed, moving away from the current sporadic approach that fosters a risky attitude towards tax payments.
The tax advisory sector is increasingly under pressure to mitigate fraud. Regulatory mandates require private entities to report suspicious activities to avoid complicity. However, this magnifying glass doesn't seem to focus as intently on HMRC. They too should be quick on the draw. Halting a £1,000 fraud in its infancy is far more manageable than curbing a million-pound evasion.
HMRC's resource allocation remains an enigma. When probed by the PAC, they couldn't quantify the compliance yield achievable with their current resources. The committee emphasized aiding taxpayers willing to comply, ensuring that evading taxes should never be easier than paying them.
For the conscientious taxpayer, where does the motivation lie, aside from ethical considerations and risk aversion?
The issues plaguing HMRC are profound, and their repercussions resonate across the board. A comprehensive revamp is imperative, characterized by decisive leadership, a well-articulated action plan, and stringent oversight.
Resource allocation needs clarity. HMRC requires robust systems and a framework for public accountability mirroring the private sector's anti-fraud mechanisms.
Addressing these challenges head-on can bolster the UK's tax apparatus, reclaiming lost revenues and reinforcing the principle of equitable contribution towards national prosperity. A resilient tax compliance system underpins a flourishing democracy and equitable society.
September 2023