135.This chapter considers the evidence about a changing culture in HMRC, the possible influences on that culture, and the wider concerns over customer service. HMRC describes taxpayers as ‘customers’ to support its internal focus on service and include all the people it provides services to. This follows criticism by the House of Commons Public Accounts Committee and the National Audit Office. In this report we refer to individuals as taxpayers.
136.This is a short inquiry into HMRC’s powers and their use; it comes at a time when those affected by the loan charge, Accelerated Payment Notices and Follower Notices have particular concerns to voice. However, the evidence received from representative bodies suggest the issues are more widespread, particularly around compliance and penalties.
137.Witnesses told us of an increasingly challenging use of penalties. To charge a penalty for failure to take reasonable care or deliberate non-compliance HMRC needs to demonstrate evidence of these behaviours. However, we heard that HMRC would often claim a failure was deliberate without apparently considering whether less culpable behaviour might have been involved, and without providing evidence. In some cases it was suggested that HMRC might allege fraudulent behaviour to access the longer time limits for assessing tax where it had made procedural errors.
138.Concerns were also expressed that when penalties had been applied, HMRC staff did not appear to understand the circumstances in which penalties can be suspended, and so would inappropriately block suspension without further consideration.
139.In bringing forward penalties, HMRC did not explain the rules to taxpayers so that they understood how they work or their rights in challenging HMRC decisions. LITRG told us that unrepresented taxpayers are usually unaware of how they could challenge HMRC’s assertions.
140.There were also instances where HMRC presented a request for information as if it were a statutory requirement when in fact there was no obligation on the taxpayer to provide it. This was most serious where unrepresented taxpayers were concerned as they would not know that such a request exceeded HMRC’s powers. Similarly HMRC would ask for written declarations for matters beyond the statutory requirements, which could confuse, pressure or perhaps intimidate the recipients.
141.We heard that HMRC issued requests for information that had to be complied with within 30 days, and might not approve a request for an extension. We were given examples where HMRC had raised penalties despite a taxpayer trying their best to comply.
142.HMRC was criticised for having poor response times in handling inquiry correspondence. The taxpayer has a reasonable expectation of a timely response from HMRC, in accordance with departmental targets and the Charter commitment on efficiency. They can ask a tribunal to force HMRC to conclude an enquiry by issuing a closure notice, but this process is not well known, cumbersome and some taxpayers may prefer not to use it.
143.Witnesses cited examples of HMRC continuing to pursue compliance enquiries even after it became obvious that minimal amounts of tax were at stake “in the hope that they may find something”. Inquiries were needlessly prolonged, which was not efficient or effective for HMRC or the taxpayer. Further, HMRC does not set the cost of an investigation against its tax yield, meaning they have little incentive to avoid costly legal proceedings. Taxpayers could often not afford to continue proceedings to the same extent.
144.Witnesses told us that some HMRC staff displayed increasingly aggressive and unreasonable behaviour towards taxpayers. “The pursuit of the maximum amount of tax, using a cherry-picked fact find whilst ignoring valid contrary evidence, results in the wrong amount of tax extracted from taxpayers, and HMRC failing in their duty to collect the right amount of tax.”
145.This was not a case of HMRC targeting challenges on smaller businesses or the unrepresented rather than larger ones; more that the larger or represented businesses were better placed to rebut or respond to such issues.
146.There was a generally held view that a more aggressive approach had emerged from HMRC since the Powers Review, particularly in enquiries and penalties. ICAEW could not explain why these problems were occurring but suggested “One reason may be lack of training for HMRC on the legislation which underpins their work. Lack of HMRC resources and pressure to reduce the tax gap may be other factors.” ICAS commented that a more rigid approach to compliance and penalties, and less willingness for HMRC to exercise discretion might be as a result of past criticism of it for favourable settlement arrangements with some large taxpayers.
147.The Adjudicator considers taxpayers’ complaints about how HMRC has handled their tax affairs. However the Adjudicator cannot consider matters of policy or the operation of tax law, nor matters still under enquiry. Although funded by HMRC, the Adjudicator provides independent oversight of HMRC’s administration of the tax system in individual cases and makes recommendations to HMRC on improvement action where appropriate.
148.The Adjudicator’s report for 2017/18 stated:
“We consistently see elements of HMRC’s culture impacting on their initial interaction with customers, their complaint handling and the action taken on feedback. This manifests in attitudes to customers, communication style and decision making”.
The Adjudicator cited examples of HMRC not processing information expeditiously, making unreasonable assumptions about taxpayers’ understanding of their tax position, and poor handling of tax inquiries. In each case the taxpayer had an excessive or unexpected liability. There were 967 new complaints brought to the Adjudicator in 2017/18.
149.We heard of one case where the Adjudicator could not find in favour of a taxpayer because HMRC was acting in accordance with its own guidelines, even though those guidelines were considered unfair. We have not examined the scope of the Adjudicator’s role but it may be appropriate to consider whether it might be extended to give a fairer set of appeal rights to taxpayers.
150.The Adjudicator has an important role in providing an independent overview of HMRC’s treatment of taxpayers. Consideration should be given to widening the role to increase taxpayer access, or increasing HMRC obligations to respond to and act on Adjudicator recommendations.
151.HMRC is required to report annually on its performance against the Charter, and its work is overseen by a Charter Committee which has reported to HMRC’s Board and included representatives of different taxpayer communities. The Charter Committee has overseen an annual customer survey of HMRC’s performance against its Charter standards, differentiated by customer type. In 2017/18, the lowest scores were at 34–36 per cent (across customer groups) agreement with the statement “HMRC apply penalties and sanctions equally”. Individuals and small businesses each registered scores of 34 per cent on this question, falling by one and three percentage points respectively on the previous year. 42–50 per cent of those surveyed agreed with the statement “HMRC ensures all customers pay/receive the correct amounts”. The highest scores were agreement with the statement “HMRC treats customers fairly” (62–80 per cent) and “HMRC treats customers as honest” (64–83 per cent). Small businesses (78 per cent) and individuals (80 per cent) were broadly in agreement that “HMRC treats customers fairly”, but agents were less confident (62 per cent). Similarly, while small businesses (83 per cent) and individuals (81 per cent) agreed that “HMRC treats customers as honest”, agents did so to a lesser extent (64 per cent). These were encouraging in the context of concerns over aggressiveness, but the absolute scores reflect a substantial minority who are dissatisfied.
152.This Charter report structure has been challenged as HMRC “marking its own homework”. ICAEW commented that “The Committee … has external members but is nonetheless a direct sub-committee of the HMRC Board.” The Charter Committee has had limited oversight and resource compared to the scale and complexity of HMRC’s operations. It has not apparently picked up the strength of feeling about the change in HMRC’s culture and deterioration in customer service. It is unclear whether the Charter Committee has fulfilled the role Parliament intended for the Charter. It needs to focus more on the issues of greatest concern to HMRC’s customers.
153.HMRC recently announced that the Charter Committee would be restructured into a Customer Experience Committee. Further details will follow but the intention is to strengthen oversight. A change needs to be made in the way the Committee operates with more input from the major tax bodies and the involvement of the Adjudicator. Their perspective on how HMRC is performing against the Charter standards is more important that HMRC’s.
154.The new Customer Experience Committee should have an important role in considering taxpayers’ perspectives on how HMRC staff engage with them and in ensuring high standards of customer service. It should include representatives of all types of taxpayer, agents and tax professionals.
155.Ruth Stanier, Director-General of Customer Strategy and Tax Design at HMRC, told us she had not read all of the inquiry evidence but expressed surprise at the issues raised. She commented that HMRC had internal assurance processes to prevent inappropriate behaviours; tax professionalism of HMRC staff is her direct responsibility. After her oral evidence, Ruth Stanier wrote to say that she is following up on the evidence presented.
156.Ruth Stanier provided information about HMRC’s complaints processes, saying 54 per cent of complaints about HMRC are upheld. This may encourage others to complain, and suggests the internal complaints process can be effective. However, it also suggests that in the majority of such cases HMRC staff, even after internal reviews and despite their internal assurance processes, are getting it wrong. We heard that only a small minority of those badly treated appear to complain, yet the number last year was 77,000.
157.The evidence suggests that, in compliance and enquiry cases, the behaviour of some HMRC staff falls well below the standard set in the Charter. HMRC needs to have better systems in place to identify and address any problem behaviours as a matter of urgency.
158.HMRC has recently been given greater powers. It is being asked by ministers to collect more tax with fewer staff. These cultural drivers may have pressured staff to take a more aggressive approach to tax collection, and in doing so impaired the ability to be fair to taxpayers and act in accordance with Charter values. HMRC needs to consider how staff can be supported to ensure the right balance is achieved.
159.We recommend that the Government requires that the annual report on the Charter is agreed by the representatives of the tax community (not just individuals on the Committee) and that it is drawn up with the involvement of the Adjudicator.
160.We recommend that the Charter is amended to clarify HMRC’s responsibilities towards unrepresented taxpayers including that issues are clearly set out, legislation is explained and rights to review and appeals are made accessible.
161.We recommend HMRC undertakes a full inquiry into behavioural trends and cases of aggressive treatment, then publishes a clear statement of what leadership behaviours, training or policy clarification is required to ensure all staff are aware of what is and is not acceptable behaviour towards taxpayers.
131 National Audit Office, ‘HMRC Customer Service Performance’ (December 2012): [accessed November 2018]
132 Written evidence from ICAEW (), LITRG (), ICAS (), CIOT ()
133 Written evidence from LITRG (), CIOT (), CBI (), Pinsent Masons LLP (), ICAEW ()
134 Written evidence from Pinsent Masons LLP ()
135 Written evidence from Fiona Fernie ()
136 Written evidence from LITRG ()
137 (Jason Collins)
138 Written evidence from CIOT ()
139 Written evidence Fiona Fernie ()
140 Written evidence from Herbert Smith Freehills LLP ()
141 Written evidence from Fiona Fernie ()
142 Written evidence from ICAEW ()
143 Written evidence Fiona Fernie ()
144 Written evidence from ContractorCalculator ()
145 Written evidence from ContractorCalculator ()
146 (Keith Gordon), written evidence from LITRG ()
147 (Lydia Challen, Law Society, CIOT and ICAS), Written evidence from Contractor Calculator ()
148 Written evidence from ICAEW ()
149 Written evidence from ICAS ()
150 Adjudicator’s Office, Annual Report 2018 (July 2018): [accessed November 2018]
151 (Keith Gordon)
152 HMRC, Your Charter Annual Report: April 2017 to March 2018 (12 July 2018): [accessed November 2018]
154 (Ruth Stanier)
155 Written evidence from ICAEW ()
156 HMRC, Your Charter Annual Report: April 2017 to March 2018 (12 July 2018): [accessed November 2018]
157 , 31 October
158 (Ruth Stanier)
159 , 31 October
160 (Ruth Stanier)