This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.
Date Published: 11 February 2022
This is the report summary, read the full report.
The COVID-19 pandemic has added to HMRC’s workload, at a time when it already faced extreme challenges dealing with the impact of the UK’s exit from the EU and the strain of modernising the tax system. HMRC performed well in setting up and operating the COVID-19 support schemes in response to the pandemic. But responding to COVID-19 and the other pressures HMRC faced, along with a workforce which is much smaller than when the department was established in 2005, has led to poor performance, delays and backlogs in key aspects of tax administration. In 2020–21 customer service declined, as did compliance activity, with compliance yield falling by almost a fifth to £30 billion. Total tax revenue in 2020–21 was also 4% lower at £609 billion, reflecting the impact of COVID-19 on the economy. The pandemic contributed to HMRC delaying an extension of Making Tax Digital, which is a key part of its long-term transformation plans. HMRC claims that the Making Tax Digital initiative is intended to make tax easier for individual and business taxpayers but it is not clear that is how it is turning out in practice. COVID-19 has also led to changed working patterns, leaving HMRC with much more new office space than it needs.
HMRC is keen to return to business as usual as quickly as possible but this is not the reality it faces. In autumn 2021, aspects of customer service remained poor and HMRC told us it was only just starting to examine compliance cases it had deferred in 2020–21. We are therefore extremely concerned about its capacity to clear backlogs while tackling the avalanche of error and fraud it now faces on the COVID-19 schemes, Personal Tax Credits and research & development tax reliefs, delivering its long-term transformation ambitions and responding adequately to tax avoidance schemes. Error and fraud in COVID-19 support payments cost HMRC around £6 billion in 2020–21. Taxpayers view the loss of this money differently to the theoretical losses which HMRC assesses arise from the tax gap. HMRC is not doing enough to get back the money lost through error and fraud in COVID-19 support payments. Even if successful, its current plan would see it fail to recover £4 billion of COVID-19 support payments made incorrectly in 2020–21. Such inaction risks rewarding the unscrupulous and sending a message that HMRC is soft on fraud.