HMRC performance in 2021–22 – Report Summary

Summary

HM Revenue & Customs (HMRC) published its 2021–22 Annual Report and Accounts ahead of the summer recess last July, an important milestone in returning to more timely reporting to Parliament. HMRC collected £731.1 billion in taxes and duties, the highest on record, reflecting the end of the acute phase of the pandemic and has made modest progress in restoring its performance to pre-pandemic levels. However, we do not consider that it has the resources required to provide the level of service its customers need, or to maximise the tax revenues it collects, at a time when the public finances are under huge strain. Improving customer service is set to become even more difficult as the current inflationary pressures squeeze taxpayer budgets and reduce HMRC’s own spending power.

In June 2022 £42 billion was owed to HMRC in tax debt, much more than before the pandemic. This debt is now set to fall more slowly than initially expected as taxpayers feel the effects of the cost-of-living crisis. In 2021–22 HMRC generated £30.8 billion from its compliance activities, though this also remains below pre-pandemic levels of performance. For every £1 that HMRC spends on compliance activities, it recovers £18 in additional tax revenue. The government is missing the opportunity to recover billions in lost revenue by not resourcing compliance.

HMRC will need to develop its ability to identify and support those taxpayers who are genuinely struggling while targeting its scarce resources to ensure that businesses and individuals who are able to meet their liabilities are paying their fair share. HMRC’s customer service performance has been declining for many years and is not acceptable to the taxpayers or agents it serves. We are unconvinced that HMRC’s plans to address this through moving more enquiries to digital channels will sustainably reduce demand or deal with the poor level of service quickly enough.

We are disappointed that HMRC only expects to recover around a quarter of the £4.5 billion it estimates was lost to fraud and error in the COVID-19 support schemes. Fraud and error are also high for the Department’s costly research and development tax reliefs, which provide questionable benefit to the UK economy. While recognising the challenges involved, we believe that there is a moral duty to pursue fraud to ensure fairness and maintain a level playing field for individuals and businesses that did not abuse the schemes, rather than HMRC being seen to reward those that were dishonest. HMRC should be much more ambitious with its plans to tackle fraud and error and recover losses. It needs to rethink its approach so that it can bring in more money with its limited resources, ensuring honest claimants are not left at a relative disadvantage simply because they are more compliant.