HMRC’s annual report for 2020-21 confirms that the pandemic impacted not only its day-to-day work, tax revenues and customer service, but has potentially put delivery of the new plastic packaging tax and updating HMRC’s telephony services, at risk. The Tax Faculty outlines the key takeaways.
It wasn’t only a Finance Bill that was published on 4 November 2021; HMRC also published its Annual Report and Accounts 2020 to 2021, which includes a report from the National Audit Office, and the HMRC annual Charter report.
Unsurprisingly, the report focuses on HMRC’s response to the COVID-19 pandemic, including the delivery of the government financial support schemes and a range of other measures, such as payment deferrals, while also managing the end of the UK’s transition out of the EU.
Unlike most years, HMRC did not publish objectives and public commitments in a single departmental plan but the report lists 30 commitments in a number of areas and indicates the status of progress:
- Collecting revenues and managing compliance.
- Improving customer experience.
- Delivering coronavirus support schemes.
- Supporting the UK’s international trade.
- Transforming how HMRC works.
- Supporting wider government aims
HMRC’s assessment is that it is on track with all the commitments with three exceptions where there is a risk to delivery: the Making Tax Digital programme, its contact engagement programme (replacement of HMRC’s telephony and data services) and the introduction of the plastic packing tax. The report directly links the impact on delivery of its updated communications programme and the plastic packaging tax to the effects of the COVID-19 pandemic, but says the scale of delivering MTD for income tax, is the reason why this programme is rated ‘at risk’.
The £608.8bn in total tax revenues collected by HMRC was lower than the £636.7bn collected 2019/2020. The most notable decreases were in VAT (-11%), hydrocarbon taxes, (-22%), stamp taxes (-18%) and air passenger duty (-91%).
Capital gains tax (CGT) stands out as the revenue increased by 20%, perhaps due to the new requirement to pay CGT on UK property within 30 days (now 60 days) of completion or maybe due to expectations that CGT rates may increase.
Debt held at the end of March 2021 was £57.5bn up from around £35bn in the previous year, but down from the peak of £70.2bn that it reached during the pandemic.
Compliance yield dropped to £30.4bn, compared to £36.9bn in the previous year. The report emphasises that, during the pandemic, the main focus of compliance work was on preventing criminal attacks.
The report highlights the increasing role of digital prompts which yielded £147.2m; examples include prompts within HMRC’s online self assessment return and charity gift aid repayment claims.
The annual report also reveals high-levels of fraud related to the government’s COVID-19 support schemes. It estimates fraudulent claims and claims made in error could equate to £5.8bn.
The report acknowledges that, to respond to the pandemic, resources, including up to 9,000 HMRC staff, needed to be diverted from other HMRC activity, such as compliance checks, PAYE support and self assessment services.
ICAEW members have directly felt the impact of the doubling of average phone answering times to an average of 12 minutes. For PAYE and self assessment services the answer times increased from eight to 17 minutes. The report also confirms that almost 30% of calls were not answered.
The percentage of post being cleared within 15 working days fell from 70% to 64%. In the second half of the year the figure fell to around 40% and current reports from members indicate that the situation with regard to post remains extremely concerning.
HMRC operates a two-tier complaints process providing an opportunity for a second independent review of a complaint. If not resolved, the complaint can then be referred to the independent Adjudicator’s Office. In 2020/21, complaints increased by 19.7% at the first level, 30.9% at the second and 46% at adjudicator level, with HMRC citing COVID-19 related complaints as the primary reason for the increase.
In looking at its customer service over 2020/21, HMRC highlights the work done on revising the Charter and to embed it across the organisation. ICAEW commented on HMRC’s performance against the Charter standards in ICAEW REP 43/21 and this is partly reflected in the comments of the Charter stakeholder group.
HMRC’s performance against the Charter reflects the broader problems with its service performance. The introduction in April 2020, of the new requirement to report and pay CGT on UK residential property within 30 days, including the lack of awareness raising and guidance has been highlighted by ICAEW as a particular area where performance did not meet the standards outlined in the Charter.
This section of the report highlights the significant pay and contract reform agreement reached by HMRC and staff. The move to 13 regional centres continued with four new centres opening during the year and seven of the 13 centres now being operational.
HMRC also invested considerable sums in its IT estate, including improving the resilience and security of legacy systems in particular. This investment is not necessarily visible to taxpayers but is crucial to the future operation of the tax system.
HMRC updated its strategic objectives in Spring 2021, and these now are:
- Collect the right tax and pay out the right financial support.
- Make it easy to get tax right and hard to bend or break the rules.
- Maintain taxpayers’ consent through fair treatment and protect society from harm.
- Make HMRC a great place to work.
- Support wider government economic aims through a resilient, agile tax administration system.
The annual report identifies nine strategic risks to meeting its updated objectives and provides an amber/red rating as to the level of risk.
Those with the lower amber rating, include the capacity and capability of HMRC’s staff, a perceived loss of trust with HMRC, the UK’s relationship with the EU on tax matters and HMRC’s ability to deliver change programmes.
Meanwhile, risks rated as red, include security and data protection, improving customer experience, HMRC’s ability to effectively use data and HMRC’s funding. The report provides a summary of each of the risks, suggesting that the Brexit-related risk is improving, while the other risks are considered stable.
ICAEW Know-How from the Tax Faculty
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.