11.“Building Our Future Locations” is one of the major programmes in HMRC’s transformation portfolio. It consists of creating 13 regional centres, redeploying staff and disposing of buildings. In terms of the impact of the COVID-19 pandemic on HMRC’s plans for these regional centres, the Department told us that it remains committed to reforming its office estate and its overall strategy has not changed. HMRC explained that its legacy of a large number of small offices no longer fits what it needs as a modern tax authority. There have been some delays to the programme because of the impact of the pandemic on the construction industry but the Department continues to make progress. Its Annual Report notes that 12 sites for its new regional offices have been secured, nine centres are being built and fitted out, and three are already open (in Croydon, Bristol and Belfast).
12.We questioned the Department on its policy of entering into non-breakable 25-year lease agreements, which we had criticised in the past. We wanted to know whether the impact of the pandemic on the commercial property market, such as falling rents as a result of reduced demand for space, had made its policy even more unwise. We stressed that it was strange for it not to be looking at taking shorter leases. In April 2017, long before COVID-19, we raised our concerns about HMRC locking government into holding larger properties for longer than needed. We raised similar concerns again in January and April 2018.
13.We asked the Department if it had taken on any more leases on a 25-year non-breakable basis in the last year. HMRC said its estate strategy had not changed in the last year and it did not think it had taken on any more 25-year leases but it would need to check. It subsequently confirmed that the only new 25-year lease with no break since the April 2018 evidence session was for the regional centre in Nottingham, signed in November 2018. The only other new leases since April 2018 have been for specialist sites in Worthing and Ipswich. Worthing will be a 17-year lease and Ipswich (which is a refurbishment of part of an existing building) is three leases for different floors, each for 15 years with breaks after ten years.
14.Following our April 2018 session we had questioned whether the regional office deals HMRC had struck would offer sufficient flexibility to cope if plans did not work out as intended. In our 2020 evidence session HMRC told us that it expects to have more flexible working arrangements for its staff in the future, which will reduce its need for office space. It acknowledged that many more of its staff are likely to spend, say, two or three days a week working at home if they want to, and that this would affect the amount of office space it needed. However, the Department explained that in general its regional centres are “government hubs” that provide a great deal of flexibility in terms of who occupies them. For example, HMRC told us that it currently lends some of its estate in Croydon to the Department for Work & Pensions.
15.HMRC told us it still believed the most cost-effective way of getting good deals in the property market is to enter into long-term leases. The Department explained to us that its regional centres are in “attractive locations” and if it transpired that it needed less space because of the COVID-19 pandemic, it believed that space would be “readily lettable” to other government departments or the private sector. HMRC assured us subsequently that, where possible and in keeping with commercial reality, it has negotiated flexibility, such as subletting and sharing of occupation arrangements, into its leases. The Department told us that all of its transactions had been scrutinised and endorsed by qualified Chartered Surveyors, external to government, to demonstrate that, on the terms negotiated, HMRC had achieved value for money over the full term of the leases. We asked the Department to agree to take the impact of the pandemic on the commercial property market into account before taking on any more long-term leases and HMRC confirmed that it would.
16.We asked the Department to write to us about how its recruitment and location policy would reflect the ‘levelling-up agenda’. HMRC subsequently wrote to us to explain that it was supporting the government’s levelling-up agenda by helping ensure the Civil Service was spread more widely across the UK. HMRC told us that, in future, its staff would be based in a network of large regional centres, specialist sites and transitional sites across every region and nation of the UK and that it would concentrate recruitment in these locations. Eleven of HMRC’s regional centres (Manchester, Birmingham, Leeds, Newcastle, Bristol, Nottingham, Liverpool, Cardiff, Edinburgh, Glasgow and Belfast) are identified as Places for Growth.
17.COVID-19, and HMRC’s role in the government’s response, has had a significant impact on the Department’s operations. Most of HMRC’s staff are working from home and it has reallocated many of them to support the COVID-19 measures. HMRC told us that customer service performance levels suffered as soon as it had to divert resources to deal with the implications of COVID-19. At the peak, in May 2020, 9,097 staff (16% of its total workforce of 58,592) were reallocated to COVID-19-related roles. When we asked HMRC why it had struggled to provide a good level of customer service even before the emergence of COVID-19, the Department told us about problems in its recruitment in the first half of 2019–20, which meant headcount was approximately 8% below where it should have been.
18.In terms of its compliance work, restrictions on travel and social distancing have affected HMRC’s ability to visit taxpayers and many businesses have not been operating. HMRC told us that while it has restarted some of its criminal investigations, it has put its more routine compliance work that involves visits to taxpayers’ premises on hold. The Department did point out, however, that the vast majority of its compliance work is done remotely and does not require visiting premises. Nevertheless, HMRC confirmed that it will collect less compliance through its compliance activity in 2020–21 than in did in 2019–20. We asked HMRC about the impact of the pandemic on tax receipts and the effect of this on its compliance activities. HMRC told us that the economic impact of COVID-19, in reducing incomes, and government measures to defer payment of certain taxes, will lower tax receipts in 2020–21. The Department told us that the Office for Budget Responsibility expects a reduction in receipts in both this year and future years. While COVID-19 is an unprecedented event, HMRC told us its experience of the 2007 financial crisis suggests that, in a period of economic downturn, the tax gap is not necessarily affected significantly, with the exception of one element. That one element being ‘non-payment’ mainly where people or businesses become insolvent without paying their taxes.
19.HMRC told us that it has a significant debt balance, about £27 billion, which is not in any payment arrangement and has increased mainly as a result of policy decisions to allow taxpayers to defer their tax payments. HMRC aims to get as much of the balance as it can into “managed payment arrangements” and to minimise its exposure to losses through insolvencies. HMRC said its intention was to allow taxpayers as much time as they need to pay their tax, and to try to avoid bankruptcy or insolvency except “as a very last resort on non-viable taxpayers”. HMRC highlighted the very high compliance rates, about 90%, of its ‘time-to-pay’ instalment arrangements to recover tax debts, which allow it to collect the vast bulk of outstanding taxes and to minimise the number of insolvencies. In the early stages of the COVID-19 lockdown, HMRC had suspended all of its debt recovery actions to recognise the struggles faced by taxpayers as a result of the pandemic. The Department told us that more recently it has restarted it debt recovery operations, targeting businesses that its data suggest ought to be able to pay their tax liabilities.
20.We asked HMRC about it plans to tackle fraud and error in the COVID-19 support schemes while ensuring the timely payments of support to those in need. HMRC explained that it has to strike a balance between helping as many people as it could, as fast as possible, while also managing the risks of fraud and error. HMRC mitigated some of the risks at the design stage of the schemes by making any support contingent on the data it already held about employers, employees and the self-employed. It was also able to identify very high-risk claims in the period of approximately 72 hours between a claim being made and payments being processed. HMRC told us it had stopped about £63 million-worth of payments during that period. However, it will have to manage the remainder of any fraud and error after payments have been made, over a period of time. We asked the Department about what it considered was an acceptable level of fraud in the schemes it administers. HMRC told us that no fraud is tolerable. However, in the case of the CJRS it had made a planning assumption that the level of fraud and error in the scheme could be between 5% to 10%. The lower end of the estimated level of fraud and error would be in line with the estimated levels of fraud and error in tax credits and the tax system (HMRC’s latest available estimate of the tax gap in 2018–19 was 4.7%). The upper level of HMRC’s estimate of fraud and error in CJRS, however, was significantly higher than comparable estimates and it would be “very unwelcome” to HMRC. HMRC explained to us that it faces a “multi-dimensional” challenge, in terms of administering COVID-19 support schemes, dealing with the end of the UK’s EU Exit transition period and modernising the tax system whilst still maintaining business as usual performance. To help achieve its objectives HMRC has published a 10-year strategy for modernising the tax administration system.
31 C&AG’s Report, Figure 18
32 Qq 66, 69
33 HMRC, Annual Report and Accounts 2019 to 2020, HC 891, November 2020
34 Qq 68, 70–71
35 Committee of Public Accounts, The HMRC Estate, Fifty-third Report of Session 2016–17, HC 891 ,29 April 2017; Committee of Public Accounts, HMRC’s Performance in 2016–17, Twelfth Report of Session 2017–19, HC 456, 12 January 2018; Committee concerns raised in the April 2018 evidence session summarised in letter dated 6 June 2018 from Chair to HMRC Permanent Secretary
37 Letter dated 3 December from HMRC Permanent Secretary to Chair
38 Committee concerns raised in the April 2018 evidence session summarised in Letter dated 6 June 2018 from Chair to HMRC Permanent Secretary
39 Qq 66–68, 71
41 Letter dated 3 December from HMRC Permanent Secretary to Chair
42 Q 70–71
44 Letter dated 3 December from HMRC Permanent Secretary to Chair; Further detail on Places for Growth can be found on the Office of Government Property website available at:
45 Qq 20, 52–53; C&AG’s Report, para 13
46 Q 53; C&AG’s Report, para 2.22
47 Qq 59–60
48 Q 58; C&AG’s Report, para 13
49 Qq 102–103
50 Qq 20–21; C&AG’s Report, para 2.16
51 Qq 21, 57
52 Qq 21–23
53 Q 26
54 Q 42; C&AG’s Report, para 2.13
55 Q 43; HMRC’s statistics and methodological annexes relating to measuring tax gaps available at:
56 Qq 62, 65
57 The government’s 10-year strategy to build a modern tax administration system available at: