MPs put HMRC on deadline over unacceptable service to taxpayers

Contractors’ advisers sound pleased that a “scathing” new report on the taxman groups his many shortcomings into one place – but it fails to tell them much they didn’t already know.

Tax expert Mike Hodges says “to those at the sharp end who deal with HMRC every day,” the 24-page report by the Public Accounts Committee “comes as no surprise”.

Tax dispute expert Tom Wallace says the PAC’s headline finding -- that HMRC customer service is not “acceptable”, is something he experiences on behalf of clients “time after time.”

'Unacceptable for HMRC to simply close taxpayer telephone lines'

There is vindication in the report for the advisers, as the committee found HMRC customer service has been “declining for many years,” for both taxpayers and “agents” alike.

Less known perhaps, including it seems to the committee’s MPs, is that sometimes HMRC’s telephone service for taxpayers isn’t just declining -- technically, it's totally unusable.

“We were surprised to learn that at times in the past, HMRC has simply closed its telephone line when it could not cope with demand,” the PAC found.

“It is not acceptable not to answer calls from people who are trying to pay the government money.”

'Huge strain'

At a time of “huge strain” on the public finances, the MPs are just as aghast to find HMRC is owed £42billion in unpaid tax, and HMRC isn’t collecting about 5% of owed liabilities.

The PAC says scope remains to reduce the ‘tax gap’ (£32bn in 2020/21), given that for every £1 it spends on compliance, HMRC currently gets back just £18 in additional tax revenue.

Experts suggest the Revenue having 6,000 fewer customer service staff than five years ago goes a long way to explaining its problems -- at the coffers, and on the phones.

'If it's difficult for taxpayers to access HMRC, they will disengage'

“It is impossible to get through on the phone,” says dispute expert Mr Wallace, formerly of HMRC, now of WTT Consulting.

“If you are lucky enough to have someone pick up the phone [at HMRC], then they likely do not know the answer and you are promised a call back that never materialises.

“Nobody takes responsibility for the issue and owns it, passing it to some unnamed ‘techie’ who cannot be contacted directly. Sometimes they don't even know who to pass it on to and tell you that you need to phone another number -- which they cannot provide. 

“And don't get me started on the correspondence that takes [HMRC] over 12 months to respond to! Most [taxpayers] want to pay the right tax but like any service, if it is difficult to access then as a consumer you simply disengage with it.”

'Unconvinced digital is the answer'

In their report, the committee says taxpayers are “more satisfied” with HMRC’s digital services than its phone or postal services.

Positively, HMRC’s plan for improving customer services is to “continue digitalising the tax system” but that still isn’t going to cut it according to the MPs.

“We are not convinced that its [the Revenue’s] plans will sustainably reduce demand for traditional channels or deal with the unacceptable level of service that taxpayers and agents are currently suffering.”

Speaking just after Making Tax Digital for Income Tax Self-Assessment was delayed by two years, the committee added: “The move to online services will not happen quickly, and will not be appropriate for all circumstances or customers.”

'Taxman yet to demonstrate he's done all he can'

Elsewhere in ‘HMRC performance 2021/22,’ the PAC expresses disappointment that HMRC only expects to recover around a quarter of the £4.5bn it estimates was lost to fraud and error in covid support schemes.

“HMRC is yet to demonstrate it has done all it reasonably can to recover the losses and avoid the dent to public finances,” the report scolds.

“HMRC risks rewarding those taxpayers that were dishonest if it does not pursue more of the losses than currently planned.”

The MPs added that tax collectors need to be “more ambitious” in recouping furlough-related losses, and with similar schemes like SEISS, should rethink their approach so they “can bring in more money” with their limited resources.

'Planning and execution are HMRC's problems'

“Strange term to use with regard to HMRC -- ‘lacking ambition,’” reflects ex-tax official Tony Margaritelli.

“Ambition burns brightly in everything they start out to do. The problem is not the ambition but the planning and execution. MTD is a prime example.”

Taking to LinkedIn, Margaritelli expressed some sympathy for his former employer, saying HMRC probably could achieve its ambitions with “the correct tools, the correct funding, [and] the correct training”.

'Blame'

International tax specialist Nick Miller agrees: “Steep reductions in headcount have played a big part in creating this situation together with cuts in training budgets,” he posted.

“You can blame the organisation -- and no doubt there are instances of poor use of resources -- or, as some do, the individual officers, but you also need to be pointing the finger at successive governments of both persuasions over the last two decades.”

At Saffery Champness, where Mr Hodges is tax partner, an acknowledgement came that since January 2023, HMRC is trying to “channel its resources to bridging the tax gap.”

'Very capable individuals at HMRC now on new complex enquiries system'

Hodges was referring to HMRC making the decision to transfer what he called “some very dedicated and capable individuals” to trial a new system of complex enquiries.

But less impressed, WTT’s Mr Wallace points out that if the (automated) new system believes the caller’s reason for calling is better answered online, there’s no chance to disagree with a human being.

“From January 19th, if you phone the HMRC helpline…[the new system can] automatically send an internet link to the number you are calling from and disconnect the call -- without you ever speaking to an operator.”

'HMRC has further to go'

WTT’s director of tax investigations, Mr Wallace also said that the caller queries that will make the system disconnect the caller include help with tax returns, finding your UTR and despite the January 31st tax deadline looming, seeking confirmation of whether a return is outstanding.

Designed by HMRC to free up staff resources so they can answer more complex enquiries, the new phone system sounds incapable of assisting the department with one of the PAC’s dozen-plus recommendations.

Likely to be endorsed by loan charge contractors, the committee recommended: “HMRC has further to go until it can differentiate between taxpayers who are genuinely struggling, and those who can afford to meet their liabilities but are choosing not to.”

The MPs continued: “HMRC should set out how it will strike the right balance between providing support to taxpayers who need it, whilst ensuring that those able to meet their liabilities are doing so.

“HMRC should also set out when its single customer account will be ready and consider how it can bring the implementation of it forward.”

'Three months, no more, to say how to turn things around'

The recommendation follows the Revenue trying to end its so far “standardised approach to debtors” by adding 700 staff to its debt management unit and, “experimenting with data from credit reference agencies to gain insights into its debtors.”

WTT’s Mr Wallace, who described the report as “scathing” of HMRC, reflected on the Revenue being put on deadline -- of no longer than three months -- to specify how to turn things around.

“The PAC have asked HMRC to set out its plans to raise customer service to adequate levels as soon as possible,” he said, alluding to three months being the absolute latest timeframe which the MPs want HMRC to say how it will turn things around by. “Let's see what they come up with.”

'Impact on businesses and individuals'

Susan Ball of the Chartered Institute of Taxation said: “The PAC are right to be challenging HMRC on customer service levels. The delays that taxpayers and their advisers currently face are not acceptable.

“Our members tell us every day of the delays they face getting answers and action from HMRC – and the impact this is having on businesses and individuals.”

The institute’s president, Ball added: “It is crazy that people trying to get help from HMRC on paying the right amount of tax find it so difficult to get through, especially when an estimated £3bn a year is lost to the Exchequer from non-deliberate taxpayer error. The first principle of compliance surely has to be making it easy for willing taxpayers to comply with their obligations.”

'Horse has bolted'

Dame Meg Hillier MP, chair of the PAC, said: “The eye-watering £42 billion now owed to HMRC in unpaid taxes would have filled a lot of this year’s infamous public spending black hole.

“But the public purse will continue missing out on billions of desperately needed revenues as HMRC will only employ more staff to tackle compliance over the next few years – that’s not fast enough to dent the tax gap at a time of huge public sector spending pressures. Meanwhile taxpayers battle customer services that need improvement.”

Hillier added that the committee recognised “the problems HMRC faces” saying that, due to poor controls, it is probable “the horse has bolted” already.

“But we believe there is a moral duty to pursue fraud,” the Labour MP caveated. “HMRC must ensure dishonesty is not seen to create advantage.”