HM Revenue & Customs (HMRC) has a daunting task as it prepares for the UK’s exit from the European Union, in whichever form that takes, whilst reprioritising its ongoing projects and day to day services. The Committee recognises these challenges but we remain concerned about the risks to customs and borders post Brexit and the impact on British businesses. The recently announced further delay to HMRC’s new Customs Declaration Service, which means that it is very unlikely to be ready for exporters by the time of Brexit, and the need for further development of HMRC’s systems so that by March 2019 they can handle postponed accounting for import VAT in the event of no deal, underline the risks. We have written separately to HMRC to emphasise our continued concerns.
And whilst managing these projects, and with staff and resources diverted, HMRC has had to make choices about how it delivers its ongoing work. Error and fraud in Tax Credits is a long-standing problem for HMRC, with £1.3 billion lost to error and fraud in 2016–17 alone. It is very disappointing that HMRC expects the rate of overpayments to increase and exceed its target to keep error and fraud below 5% of Tax Credit payments. Our concerns last year that HMRC lacked an incentive to reduce error and fraud in Tax Credits have now come to fruition. HMRC has de-prioritised action to reduce error and fraud because Tax Credits are being replaced by Universal Credit.
We remain concerned about HMRC’s management of tax reliefs. There are too many reliefs where HMRC has only a limited understanding of whether they represent value for money. We are also concerned by the variable standard of Pay As You Earn (PAYE) administration by employers and pension providers. Poor administration leads to errors in tax collected, causes problems for taxpayers and results in errors in Tax Credits and Universal Credit payments. HMRC has tried to encourage employers to improve administration of PAYE but considers it does not have the sanctions to tackle the issue effectively. HMRC’s customer service targets are too narrowly focused and do not help it understand the overall quality of service it provides to individuals and to businesses.
HM Revenue & Customs (HMRC) is the UK’s tax authority, responsible for collecting tax from individuals and businesses, and providing support to families and individuals through Personal Tax Credits (Tax Credits) and Child Benefit. In 2017–18, HMRC raised £605.8 billion of tax revenues, an increase of £30.9 billion (5.4%) on 2016–17. It estimates the value of its activities to collect and protect tax revenue in 2017–18 was £30.3 billion, 8.2% above its target (£28.0 billion). In 2017–18, HMRC paid out £38.0 billion in Tax Credits and Child Benefit, approximately one-fifth of the government’s total benefit expenditure. HMRC estimates that error and fraud resulted in overpayments of Tax Credits of £1.3 billion, and underpayments of £0.2 billion, in 2016–17 (the most recent year available). HMRC’s total forecast of the costs of tax reliefs – which reduce tax for particular groups, individuals or things - for 2017–18 is £416.8 billion, an increase of £13.1 billion (3.2%) on 2016–17, but this reflects the costs of 185 of the 424 tax reliefs it administers. In 2017–18, HMRC achieved its six customer service targets for processing post, for processing Tax Credits and Child Benefit claims and changes of circumstances, and for answering calls to its helplines. HMRC narrowly missed its other two customer service targets, for customer satisfaction with its digital services and the time to process online forms submitted by customers.
Published: 2 November 2018