Panellists

• Stephen Relf, Technical Manager, Tax, ICAEW
• Frank Haskew, Head of Taxation Strategy, ICAEW
• Lindsey Wicks, Senior Technical Manager, Tax Policy, ICAEW

Producer

Ed Adams

Transcript

Stephen Relf: Hello and welcome to The Tax Track, the podcast series from ICAEW, where we explore the latest developments in the world of tax. On 17 July, HMRC published its annual accounts and report for 2024/25, shining a light on the challenges it faces, from improving its services to taxpayers and agents to closing the tax gap. A few days later saw the publication of HMRC’s transformation roadmap, setting out its plans for new and improved digital services, and also draft legislation for Finance Bill 2025/26 across a wide range of areas. In this episode, we’ll explore why the tax system is in need of reform.

Frank Haskew: It paints a picture, really, of a continuing poor performance, which is borne out by what we hear from members.

SR: And we’ll consider the possible implications of the proposed changes, focusing on agents who may face significant challenges from as early as April 2026 as Making Tax Digital and agent registration begin to take effect.

Lindsey Wicks: The agent registration is coming in at the same time as Making Tax Digital for income tax. I think that in itself is potentially a perfect storm.

SR: I’m Stephen Relf, a Technical Manager for Tax at ICAEW. Today, I’m joined by two colleagues from the Institute’s tax team, both of whom are regular contributors to the podcast. Frank Haskew, Head of Taxation Strategy, and Lindsey Wicks, Senior Technical Manager for Tax Policy. Welcome Frank and Lindsey. So as we’re all aware, in recent years, HMRC has missed many of its key performance targets. Now, Frank, recently, we had the publication of HMRC performance data for the year to March 2025 – does that show any improvement?

FH: Well, if we put this in context, firstly, that HMRC’s service standards have been a number one concern of ICAEW members, almost for, I would say, the last 15 years. It seems to have been a problem, really, ever since the Inland Revenue and HM Customs and Excise merged back in 2005, and it’s been steadily a problem and getting worse ever since. So back in May 2024, the then Conservative government announced that they would allocate an extra £51m to HMRC to improve its telephone performance in 2024/25. The target was to reach 85% of calls being answered, whereas at the time, they were only having 66% of calls being answered, so there was a 19 percentage point difference between their target answering and what they were actually achieving.

SR: So as you say that’s quite a significant differential there between actual performance and target performance. Did they meet it?

FH: The short answer is no. The annual report and accounts show that what they managed to achieve in 2024/25 for the whole year was 71.5%. They did say, to be fair, that it would incrementally improve over the year, but the last quarter for which we’ve had those figures only showed us at 75%, so the fact is that, on the face of it, you know, we’ve had £51m to get it up to 85% and we’re still 10% short of that.

SR: So despite that investment, there’s still the speed of response on calls isn’t good enough. Also, I believe speed of response on post isn’t good enough.

FH: No. I mean, according to the key metrics in HMRC’s report and accounts, we effectively missed all the metrics in terms of performance, both, as we’ve just seen, in terms of telephone, for which they’ve had extra investment, but also in in terms of post as well. The only metric that they actually achieved was compliance yield, so it paints a picture, really, of a continuing poor performance, which is borne out by what we hear from members.

SR: Yeah, and it’s not just speed of response, either, is it? It’s also the quality of that contact. I know in the past we’ve raised concerns that agents are telling us that they have to make repeated contact with HMRC in order to resolve a query. Is that correct?

LW: We did our joint report with the Chartered Institute of Taxation last autumn, and in that we found that agents were having to progress-chase – or a third of all calls related to progress-chasing, so trying to find out the status of something. And for those calls, agents were spending approximately 31 minutes on the phone, 19 minutes of that actually waiting for the phone to be answered – and achieving a resolution from such calls only 15% of the time. Now, the latest metrics do show that numbers of callers waiting for more than 10 minutes has fallen. So it was 60.6% in the last year, compared to 70.7% in the previous year. But these performance indicators are a narrow measure. They’re not measuring the quality of the interaction with HMRC, or whether something’s led to a resolution, or whether somebody needs to call again. One positive is that the customer satisfaction score is close to the 80% target. But again, that’s not really a measure of resolution of a query, and within the annual report and accounts they also have the charter survey in there, and only 33% of agents gave a positive rating in the 2024 survey, compared with 37% in 2023.

SR: So that’s service standards, and we know HMRC has a lot on its plate there to improve that position. But also, I’ve noticed in recent fiscal events, that there’s been a renewed focus, or a new focus, on closing the tax gap and also reducing tax debt. Is there anything in HMRC’s accounts which gives us some idea of progress there?

FH: Yes, the tax gap report has shown a slight fall in the percentage of tax liabilities not collected as a percentage of the overall tax take. I think one of the troubles with the tax gap figures is that they use a variety of data to construct it. I think you can read too much into it. It’s very much a snapshot, and it’s very much, I would almost say, it’s a bit more of an art rather than a science.

SR: They’re quite volatile as well, aren’t they? Estimates. They do vary year on year.

FH: The other thing we saw – we saw it with the latest set of figures, is that they’ve revised the previous year’s figures when they get more data coming in. So although it’s come down, it’s actually higher than it was according to the previous year.

SR: I think that’s the HMRC encourage us, don’t they to look at the trends rather than one year in particular. They do.

FH: And I think there’s a brilliant article you wrote, Stephen, on the tax gap.

SR: Thank you very much.

FH: I very much recommend members to have a look at it. And there’s some great graphs in there on the trend. But what it seems to be showing is that it’s sort of, it’s come down from sort of seven, eight or even higher, but it seems to be levelling out towards about 5%.

SR: Yeah, it seems to be very stubborn in the last few years, doesn’t it?

FH: Well, the OECD try and do some work on tax gaps and metrics, and on the face of it, you know, according to the OECD figures, 5% is good. So, without wishing to be complacent in any way about it, I think it’s going to be hard getting it down below that figure. And the government, of course, has pencilled in an extra £7.5bn of revenue coming from closing the tax gap. So on the face of it, that looks a pretty tall order, given that, as you say, we seem to be levelling off. I mean, I would also just say that in terms of the the actual tax gap itself, the standout area is small business and corporation tax. Those are the areas where the problems seem to be most acute. So if you look at the figures, I mean, 60% of the tax gap is being attributed to the SME sector. Half of it is attributable to failures to take reasonable care in error, which on the face of it, are areas that we as chartered accountants should be helping taxpayers get right. So we’ve obviously had a number of discussions with HMRC about how we can do that, but I think one of the problems is that the data that they have is very much from a random inquiry programme, which are then, if you like, scaled up, and trying to then drill down to the figures is actually quite hard. So I think there’s still a long way to go on it, Stephen, before we actually make any progress.

SR: Tax debt does come into it too, doesn’t it? And the government and HMRC are starting to worry, I believe, about the high levels of tax debt.

FH: Well, I mean, the latest figures, according to the HMRC report, is it’s about £44bn in tax debt, of which £6.8bn is in time to pay arrangements, and there are 913,000 taxpayers, according to HMRC, who are in time to pay. I haven’t checked back through the figures, but that does sound a lot of taxpayers and a lot of debt, effectively currently in time to pay arrangements, which you know must consume quite a lot of HMRC time…

SR: …because they refer to that as managed debt, don’t they, which is correct, because it’s under control, but it is still debt.

FH: It’s still debt. And you know, the pandemic was five years ago now, and this debt figure is remaining stubbornly high. So I think there almost becomes a question, I think, as to whether we’re looking at almost a sort of structural problem here in terms of debt, which, on the face of it, is due, but it’s not paid. And we don’t really understand, other than the time to pay figures, why that debt is not being collected. HMRC are obviously putting a lot more compliance and debt management staff in, we’ve seen agreed investment for new 5,500 tax compliance staff and 2,400 tax debt staff. So it’ll be interesting to see whether this actually makes a dent in its pile.

SR: It’s not just more boots on the ground either, is it? There’s a huge investment coming up in digital services, and if that can change things when it comes to HMRC service levels, but also the tax gap and tax, debt, and there was that renewed commitment in the spending review recently that HMRC is to become a digital-first organisation. And we know it’s been set some fairly ambitious targets as well. So I think by 2029/30 looking at a minimum of 90% customer interactions being digital. Lindsey, does the data that we’ve had recently suggest that HMRC is on track to meet those kind of targets?

LW: Well, there has been an increase in digital interactions. So the level was at 76.2% in 2024/25, so that’s the latest figures, and that compares to 73.2% in 2023/24, so it’s ticking up a bit. There are going to be some new digital services. They were announced in the annual report and accounts, but also we got a little bit more information in the HMRC transformation roadmap. So one of them is for child benefit. So child benefit did go digital a couple of years ago, and it’s easier to evolve a new digital service. And this is the possible poster child for something that could reduce the need for progress tracing. So the thing that I talked about earlier, and they’re saying that in 2025/26 you should be able to track progress of a child benefit application without needing to contact HMRC, and that this will be the blueprint for what we might see in the future on other services, and that you’ll be able to check your child benefit claim and you’ll be able to see child benefit payment information in real time in the services.

SR: So some real positives, there for individual taxpayers. But I know we’ve expressed concern in the past that maybe agents are being overlooked when digital services are being designed and then rolled out. Is that still the case?

LW: We have seen a lot of commitment in this roadmap to new digital services for taxpayers, the other one being a new PAYE service for taxpayers, and that does increase the gap potentially, between what agents can do for taxpayers and what taxpayers can do themselves. And in the digital roadmap, it does recognise that compromises have been made in the design of digital services, which have reduced the ability to deliver good services for agents, and that’s something that we have been flagging continually. So it’s good to see that.

SR: positive, positive, isn’t it either acknowledged, as you say, so that the HMRC are aware of that?

LW: And I think that a lot of it will hinge on the new agent registration system, the development of a platform for agents. The other recognition is that until we’ve got the new systems, it will be necessary to provide short-term stopgap fixes for agents. So I think that even if we do get new services for agents, and there were four flagged, they won’t be the same shiny services, necessarily, as the taxpayers will be getting. So the four services that they’re looking at for agents that they are working on with professional bodies and via the agent digital design advisory group that ICAEW sits on, are to enable agents to digitally withdraw clients from self assessment, to enhance the income record viewer for agents, as well, to have a new service for agents to make changes to their clients’ tax code, and also some kind of progress tracker, but that won’t be, I don’t think it’ll be anything like, the tracker that we’re going to see for child benefit, for the individual taxpayers.

SR: It’s still quite interesting, though, because the four things you mentioned are all frustrations for agents. So these things should really make life easier, shouldn’t they?

LW: Yeah, I think that if people don’t have to phone up to progress chase, that will at least be a positive, even if it’s not quite the digital service that is the end game.

SR: So almost just helping agents to kind of self-serve in a way. Now you did mention there agent registration. Now this is one of the things that stood out for me on L-day. So L-day we’ve had recently, it’s when HMRC, the government, publish legislation for the next Finance Bill. And I believe we did get legislation on this new agent registration service. So Frank, could you tell us a little bit more about that?

FH: Well, the legislation, as you say, has been published, and at the moment, it comprises 11 pages of legislation plus an extra three in terms of, actually HMRC being able to publish people’s names. So what does it actually mean? Well, it introduces a legal requirement for tax advisers who interact with HMRC on behalf of their clients to register with HMRC, and they must meet some minimum standards. You might say, well, surely HMRC has been doing this for years, but the fact is, we’ve never had a comprehensive agent registration system. So they’ve allocated £36m investment to this new agent service. But that may not be ready until 2027, but these rules are going to be introduced from 1 April 2026, so time is already quite short on this. And I think what we’re also seeing is that the draft legislation, has a number of areas that are concerning. There are some exclusions, so payroll tax and accounting software isn’t going to be scoped into this and interestingly, customs and VAT advisers seem to be out of scope. I’m not quite sure why that is in terms of what you’re going to need to include. Well, this is where it starts getting particularly tricky, I think. I mean, obviously it’s going to be things like name and address of advisers. They’ve also introduced a new term, which is being used elsewhere, the name of each senior manager of the adviser. Senior manager seems to be defined, though, as almost like the proprietors, so the partners or the directors, if it’s a company, so they’re all going to need to be included. You’re also going to have other statements as to whether you meet the eligibility conditions, and crucially, “any other information or evidence that may be specified in a notice published by HMRC”, which is pretty broad, isn’t it?

SR: Certainly is. And I appreciate it’s early days, isn’t it, but that all sounds like a lot more paperwork.

FH: And then if you move on to the conditions, I mean, there are, ABC, there are three conditions, but A has eight sub conditions, and the first one is that each and every person of the senior managers must have their tax affairs and tax payments up to date. Can you imagine that? I mean, if you’re a sole trader, okay, but if you’re in anything more substantial, it’s just unworkable. I just can’t see how that’s going to work.

SR: It certainly does sound like an obstacle to doing business, doesn’t it? And that doesn’t really fit well with government messaging around getting rid of regulation or reducing regulation and promoting growth.

FH: Well, you seem to be also straight into it. I mean, at the end of the day, you know, with the best will in the world, some people might be behind with their tax or might not have paid their tax. I mean, why that should necessarily stop them being registered is not very clear. There’s no mention of PCRT [Professional Conduct in Relation to Taxation] in any of this, or, if you like, giving professional bodies credit for all the rules and regulations that we have to abide by as chartered accountants. So I think it is quite concerning that the path they’ve gone down at the moment seems disproportionate, potentially, and also potentially open ended in terms of what they could ask in the future.

SR: And I guess as well, this isn’t the only thing on the horizon for agents. We do, I believe, have the legislation as well on enhancing HMRC powers to tackle tax advisers who facilitate non-compliance.

FH: Where they seem to have ended up in the draft legislation is that it has to be deliberate conduct. So the agent has to deliberately do something which facilitates non-compliance by the taxpayer, which I think is probably about a reasonable position, probably. But again, I think, you know, we’ll have to see how it comes out in practice.

SR: And as we’re aware, there is another significant change coming in from April 2026. Now Lindsey, most of our conversations about tax these days are about Making Tax Digital, MTD, aren’t they? Because it’s a huge challenge ahead for those sole traders and those landlords who are going to have to start keeping digital records and reporting to HMRC on a quarterly basis.

LW: So we got two lots of legislation. We got changes to the primary legislation that will be in next year’s Finance Bill – so that’s to fix some of the primary legislation that’s already in place. One of the biggest fixes there is to introduce a power for HMRC to cancel or reset penalty points and financial penalties. So we’ve had changes to the penalty regime alongside Making Tax Digital. So that’s a positive change there. We’ve also had changes to the regulations and, given that we haven’t actually yet landed Making Tax Digital for income tax, there have been various changes to regulations over the last few years, so it’s really positive that they’ve actually taken the opportunity to consolidate all of those regulations into one new set of regulations that are easy to read, rather than having to look at one set of regulations and all the amendments to those regulations.

SR: Okay, so when I looked at the legislation, I picked out one item of good news and one item of bad news, just so shall we start with the good news. And I think that relates to corporation tax. Frank, correct, isn’t it that Making Tax Digital for corporation tax is no more?

FH: That’s correct. I mean, that was obviously quite a late announcement, and I think people have been obviously linking it to MTD income tax. The intelligence we’re getting from HMRC is that they’ve recognised that corporation tax is a much more difficult area to tackle. So we understand that, at the moment, the plan is that they’re going to look to replatform corporation tax and then look, probably, once they’ve done that, to actually try and see if they can then simplify, if you like, the underlying structure of corporation tax, but it sounds like it’s going to be, nothing will happen, I think, before 2030 so I think at the moment, any sort of reform in terms of the admin of corporation tax is at least five years away.

SR: In terms of the bad news then, unfortunately, I did see that the turnover threshold for bringing sole traders and landlords into Making Tax Digital is to be reduced again to £20,000.

LW: So yes, the legislation does now confirm that Making Tax Digital will be extended to those with turnover over £20,000 in 2026/27 tax year, and they’ll have to start using Making Tax Digital for income tax from the start of 2028/29 tax year. So from April 2028.

SR: So I know Lindsey, you in particular, have been engaging with members when it comes to MTD and doing so a lot in the last few months. What are you hearing from members?

LW: Yeah. There’s a lot of concerns out there. So, it’s very different. Quarterly reporting is just an unadjusted summary of income and expenditure for the quarter. You don’t need to do tax adjustments. You don’t even have to do accounting adjustments if you don’t want to. And for a lot of accountants that feels uncomfortable and they’re uncomfortable about sharing data with HMRC that hasn’t necessarily gone through all the normal year-end process, and then the year-end process itself is very different. Normally, if an accountant is preparing their client’s return in software, that data doesn’t get shared with HMRC until the last possible minute. So you share the data, you get the calculation back, and then at that point, you get your client’s approval, because your client is approving what they’re submitting to HMRC is correct and complete, and that they’re agreeing to that tax calculation.

So it feels very different. We’re going to have a lot more pre-population, so you’ll have your four quarters of accounting records that you’ve effectively submitted. You’re going to have your PAYE income in there, student loan repayments, pension income report in there, other taxable state benefits, construction industry scheme deductions, capital gains tax, residential property disposals, that system should be feeding in, and marriage allowance claims, that’s that should all be there in the system. So you’re confirming that that’s correct. So you can kind of understand it’s more iterative, but for agents acting on behalf of taxpayers, it’s uncomfortable that there’s a lot more data being shared before you’ve got to that final declaration. And the concerns are understandable, given the agent registration, advisers facilitating non-compliance, it feels like HMRC is becoming a little bit more Big Brother, and you’re sharing this data in a different way.

The other thing I would say is the agent registration is coming in at the same time as Making Tax Digital for income tax is coming in. I think that that, in itself, is potentially a perfect storm, because what we don’t know is if existing agents are going to have to re-register in time for next April. So there’s going to be concerns about, am I going to be able to act for my clients? Is agent registration going to work? And I’ve got all of this different way of working to deliver for my clients.

SR: Yeah, I mean, I have to confess, and Lindsey knows this all too well, that I really struggle to get my head around how it’s going to change in terms of the process of sending the information, completing the information, and getting your clients to approve it. There are huge challenges ahead. There’s no doubt about that, and so we’re clearly doing all we can to help agents to prepare. Now we’ve referenced an awful lot of documents, I think, so far in the podcast, from the transformation roadmap to HMRC’s accounts to all the legislation we got on L-day. And for me, sitting here now, it feels like we’ve had a fiscal event. But of course, we haven’t. The next one is not until the autumn. So we’re a good few months away. And yet, when I look at the newspapers every day, I hear an awful lot of speculation about the next Budget. Why is that Frank?

FH: If you look back at the Autumn Budget from last year, you know, the national insurance rise and various other taxes like the IHT, etc, that would bring in like £30bn a year, but the increase in spending was something like £65-£70bn each year, so we’re still like £30bn down, even after all those tax rises. And you know, on the face of it, that was where Kwasi Kwarteng and Liz Truss were with their infamous Statement in September [2022]. And now we’ve had also, obviously the Spending Review, and it’s, you know, just looking at that, the spending is increasing in real terms, if you look at it by how much, it’s quite difficult to really gauge. So I think everyone is now looking at a position of, you know, we’re already £30bn more in, effectively, spending from the previous Budget, we’ve now got extra spending from the current Spending Review. How are we going to pay for all of this? It doesn’t take a genius to see that tax rises are probably coming down the track, so we’re going to have a summer of speculation. How about that for a term?

SR: Yeah, certainly. And Lindsey, I apologise for this, but I’m going to put you on the spot. Any predictions for the Budget?

LW: Yeah, it’s very difficult to make predictions, but one of the things that I think is mentioned quite a lot in things like the annual report and accounts and in the roadmap is e-invoicing. So I think if there’s going to be a change to tax administration, I think we might hear something more on e-invoicing.

SR: We did welcome that as well, didn’t it? So probably good to end on a positive with e-invoicing. LW: Yeah, definitely. SR: Good stuff. So yeah, we’ve covered an awful lot of ground, which I think just shows how much is coming up. So an awful lot of things were there for agents to think about and to begin to plan for. And obviously, we’ll be coming back to these topics in future episodes of the podcast. That’s it for this episode. Many thanks to Lindsey and to Frank for your contributions.

And thank you for listening. All of the topics we’ve discussed today are covered in more depth in the articles linked in the shownotes. If you found this useful, then don’t forget to subscribe so that you never miss an episode. You can rate and share the podcast too. We’ll be back next month with the next Tax Track. In the meantime, why not check out the sister podcast from ICAEW Accountancy Insights provides business finance and accountancy analysis, while each episode of Behind the Numbers offers a deep dive into a selected topic. There’s also the students podcast aimed at young professionals. If you’re not already a member of ICAEW’s Tax Faculty, remember that Institute members can join the faculty for no additional cost. Faculty members receive our monthly TAXline bulletin. In addition, anyone can subscribe to receive our weekly TAXwire newsletter containing the latest tax news from ICAEW. Thank you for listening.