HMRC performance 2019–20 Contents

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1COVID-19 support schemes administered by HM Revenue & Customs

1.On the basis of a Report by the Comptroller and Auditor General, we took evidence from HM Revenue & Customs (HMRC) on its performance in 2019–20.1

2.HMRC is responsible for administering the UK’s tax system, reporting total tax revenue of £636.7 billion in 2019–20, an increase of £8.8 billion (1.4%) since 2018–19. HMRC’s objectives are to: collect revenues due and bear down on avoidance and evasion; transform tax and payments for its customers; and design and deliver a professional, efficient and engaged organisation.2 While most tax revenue is paid to HMRC without the need for further intervention, some is only received as a result of specific compliance and enforcement activities. Compliance yield measures the effectiveness of these activities. HMRC estimates the yield from its tax compliance activities in 2019–20 was £36.9 billion, against a target of £34.5 billion. HMRC is also responsible for administering Personal Tax Credits. In 2019–20, HMRC spent £18.3 billion on tax credits.3 The most recent available estimates suggest that overpayments by HMRC decreased from 5.5% (£1.41 billion) of expenditure on tax credits in 2017–18 to 4.9% (£1.11 billion) in 2018–19, meeting HMRC’s target for error and fraud overpayments to be below 5%.4 In 2019–20, HMRC met three of its eight customer service performance targets.5 HMRC missed its two targets for speed of answering telephone calls, its two targets for speed of response to tax correspondence and its target for speed of response to i-forms and secure emails. From March 2020, because of the COVID-19 pandemic, there was an increase in the average time HMRC took to answer telephone calls, peaking at 14:59 minutes in May and improving to 9:15 minutes in June 2020.6

3.HMRC faces a number of strategic challenges, specifically: its implementation of the government’s response to the COVID-19 pandemic and the impact of COVID-19 on its operations; its plans to transform the tax system; and its preparations for the end of the transition period following the UK’s exit from the EU. HMRC is responsible for administering significant aspects of the government’s response to COVID-19, incurring an estimated cost of over £80 billion to support businesses and individuals.7 In 2015, HMRC set the ambition of transforming itself to become one of the most digitally advanced tax administrations in the world. HMRC aims to move to a fully digital tax system where all individuals and businesses can see their tax affairs in one place and carry out transactions digitally.8

COVID-19 support schemes and the exclusion of some taxpayers

4.HMRC is playing a significant role in implementing the government’s response to the COVID-19 pandemic. For example, as of 20 September, the Coronavirus Job Retention Scheme (CJRS), which HMRC administers, had allowed employers to furlough 9.6 million employees at a cost of £39.3 billion. The Self-Employment Income Support Scheme (SEISS), as at 20 September, had seen 4.8 million claims totalling £13.4 billion to support the self-employed.9 We asked HMRC about firms that have received large amounts of support though the CJRS scheme but continued to pay dividends or high executive salaries. HMRC told us that while it expects companies to claim support only if they need it, there is no fixed rule about their arrangements for paying executive salaries or dividends.10 HMRC confirmed to us that it is possible to attach eligibility conditions to the support schemes but that it is difficult to define conditions that prevent undesirable practices without also affecting aspects of the support schemes that are considered necessary.11

5.We questioned the Department about taxpayers who had not been able to receive any help from the COVID-19 support schemes because they were complying with HMRC’s ‘IR35 rules’, which govern off-payroll working. If they had been able to continue to be self-employed, they might have had the opportunity to claim support under the SEISS measure.12 HMRC explained to us that the ‘IR35 rules’ only apply to people for whom the nature of their work engagement is employment.13 HMRC stressed the point that the ‘IR35 rules’ do not apply to anyone who is self-employed.14 In 2018, the NAO had examined the nature of, and associated issues related to, individuals the BBC hires on a freelance basis and highlighted some of the uncertainties and difficulties around the interpretation and application of the ‘IR35 rules’.15 We pointed out that such excluded taxpayers have tax and employment records visible to HMRC.16

6.We also questioned HMRC about the exclusion of some other freelancers, particularly from the creative industries, who, for similar reasons to those “forced” onto payrolls by the ‘IR35 rules’, had not been able to receive any help. Some freelancers, due to the nature of their job, often move from one job to another on relatively short-term employment contracts and due to the bad luck of not having the “right dates” on their contracts had missed out on support that their colleagues in the same industry had received.17 The Department acknowledged it had not been able to help everyone through the support schemes.18 It did, however, explain to us that it took a number of steps in the design of the CJRS measure to allow as many people as possible to be eligible for support. For example, if someone who worked on a series of short-term contracts had a contract in place when the furlough scheme started, their employer could extend that contract and furlough the person during the period of COVID-19, even though in normal circumstances the contract would have ended. HMRC had also allowed employers to rehire those made redundant and then furlough them.19

7.Following our evidence session HMRC added that people with more than one employment can be furloughed simultaneously by different employers and that eligible employees can be on any type of employment contract, including “IR35, umbrella company and agency working”. With the CJRS extension, the cut-off date has moved from 19 March to 30 October and the requirement to have been previously furloughed has been removed. Some people are ineligible for CJRS or SEISS because of policy choices, for example, it was decided that self-employed people with profits over £50,000 would not qualify for SEISS. HMRC added that, in other instances, the design of the tax system and operational constraints have meant that it had been unable to deliver help at speed and with manageable error and fraud risks. For example, the most recent complete set of self-employment data held by HMRC is for the 2018/19 tax year, meaning that the Department did not have up to date data which it could have used to determine SEISS entitlement for everyone who started self-employment more recently.20 HMRC confirmed to us that it has no plans to do further work on new schemes for people who have not been able to benefit either from the CJRS or the SEISS measures.21

Lack of certainty about the support schemes

8.HMRC is responsible for administering several government interventions in response to COVID-19. These include: grant-paying measures, such as the Coronavirus Job Retention Scheme and Eat Out to Help Out; measures to defer payments of tax liabilities, such as deferring VAT and self-assessment payments; and other tax measures, such as a VAT cut from 20% to 5% on food, accommodation and attractions. The Office for Budget Responsibility (OBR) has published estimates for the costs of COVID-19 measures. It estimates the costs of measures administered by HMRC, apart from the extra cost of the extension to the CJRS measure, at more than £80 billion.22

9.We asked HMRC whether it had carried out any evaluation of the Eat Out to Help Out scheme to inform its possible reintroduction.23 The scheme allowed customers, at participating establishments, to get a 50% discount on food or non-alcoholic drinks to eat or drink in (up to a maximum of £10 discount per diner) every Monday, Tuesday and Wednesday between 3 and 31 August 2020.24 HMRC told us that HM Treasury will announce in due course its plans for evaluating the Eat Out to Help Out and other COVID-19 support schemes. The Department explained the purpose of the Eat Out to Help Out scheme was to increase demand in the restaurant sector. HMRC told us that, while there is some evidence to show this had been achieved, there will need to be a fuller evaluation of how well the scheme worked, the error and fraud risk and whether the scheme had achieved value for money.25

10.We asked HMRC whether the Coronavirus Job Retention Bonus scheme had been cancelled or just delayed.26 The scheme would have granted a one-off payment to employers of £1,000 for every employee who they previously claimed for under the Coronavirus Job Retention Scheme and who remained continuously employed through to 31 January 2021. The OBR had estimated the scheme would cost £6.1 billion. This was lower than HM Treasury’s estimated cost of up to £9.4 billion because the latter estimate represented a maximum rather than a central estimate, so the figures are not directly comparable.27 HMRC told us that, as the CJRS measure was originally planned to stop at the end of October, the bonus scheme was meant to have then provided an incentive for employers to keep people on their payrolls. But because the CJRS measure had now been extended to 31 March, the Chancellor announced there was no need for the incentive of a bonus payment in January.28 HMRC recognised our concerns about businesses’ ability to meet their tax liabilities without any payment from the bonus scheme but reiterated the reasons the scheme was no longer proceeding. HMRC explained that there has been no announcement about the arrangements that will be in place once the CJRS measure has expired.29 HMRC subsequently told us that, as the original purpose of the Job Retention Bonus had fallen away with the extension of the CJRS scheme, the Government had announced on 5 November 2020 that the Job Retention Bonus would not be paid in February 2021 and that it would redeploy a retention incentive at the appropriate time.30