With its U-turns mounting, customer service falling, and contractor dividend suspicions increasing, it’s high time HMRC is put on a minister’s watch

For my second monthly ContractorUK column (my first here concerns a subject not totally unrelated to the topic herein), there is only one contender – and it’s a pretty obvious contender.

It’s HMRC’s humiliating but nonetheless welcome U-turn on its decision to shut its self-assessment service from April until September, writes Andy Chamberlain, director of policy at The Association of Independent Professionals and the Self-Employed (IPSE).

What HMRC helpline closures were proposed (then rubbed out) on March 19th?

HMRC was forced to make the embarrassing climbdown following outrage at the plans which, broadly, were to close self-assessment helplines for taxpayers like contractors for six months a year -- and scale back its other phone services.

And this scaling back was significant. You’ll be hard-pressed to find the original HMRC press release (it has predictably got lost on its website), but the department wanted to close the VAT helpline “permanently” (save for five business days) and preclude its PAYE helpline from dealing with calls chasing PAYE refunds.

Fortunately, it took just 24 hours after the Revenue’s announcement on March 19th 2024 for ministers to apparently step in and stop the changes.

It’s actually quite a good example of concerns by both MPs and business groups, such as IPSE, making a difference.

But the whole episode does beg the question ‘Who is responsible for HMRC?’

‘HMRC is a non-ministerial department’

Unlike other major government departments, HMRC has no dedicated Secretary of State.

Instead, the responsibility for HMRC falls to the financial secretary to the Treasury – a relatively junior minister within the government.

These Treasury ministers come and go at a frightening rate and can’t possibly have enough time in office to understand the nuances of deeply-complex tax policy. Nigel Huddleston, the current financial secretary, even clarified his own role during a debate on HMRC’s U-turn in parliament last week.

Referring to the Revenue, he labelled it as “a non-ministerial department” and said that ministers merely “set strategy and work closely with the department on operations and communications.”

Here's the tax department’s key problem…

This underlines the key problem.

Officials at HMRC are relatively free to make decisions that have wide-ranging consequences for all of us taxpayers.

And in recent decades, HMRC has unquestionably morphed into a vastly more powerful and important body, now employing the third most civil servants out of all departments. Yet, the hierarchical structure with which it operates, and makes decisions, has remained relatively unchanged.

Likewise, while you may have become accustomed to seeing the Secretary of State for Education or Health or even Housing appear before TV cameras, or before parliament, you will be hard-pressed to find this same representation from the officials running HMRC.

Yes, the Public Accounts Committee (PAC) does a sterling job in holding some of these senior officials to account, but in truth, their remit doesn’t go far enough in scrutinising the many activities of HMRC.

Increasingly poor customer service levels at HMRC

HMRC has also been under fire in recent weeks, particularly among MPs, over its falling customer service levels.

The PAC even went as far as labelling HMRC customer service at an “all-time low.”

Similarly, IPSE’s own research from the beginning of this year revealed that over two-fifths of contractors that had contacted HMRC were "dissatisfied" with their overall experience. The move towards digital services from HMRC is a sensible one to pursue but it shouldn’t come at the cost of the current services. For the transition to be truly seamless, HMRC must continue to provide support via helplines with tax advisers readily available to answer queries.

HMRC must sense-check its demand for increased information (including on dividends)

Despite the concern around how HMRC is delivering for us taxpayers in terms of the service it provides, the department is seeking additional information from us.

It is currently consulting on whether to grant itself the power to add questions on self-assessment around dividends, the percentage shareholding owned in an owner-manager company, and self-employed start and end dates.

While we don’t anticipate these changes to be particularly burdensome, we are concerned that HMRC has lost sight of its priorities.

It should be supporting taxpayers to pay the correct amount of tax and until they begin to realise this again, contractors will understandably struggle to comprehend the rationale for demanding additional information.

Aggressive enforcement of Managed Service Company legislation

With a lack of ministerial oversight comes a lack of accountability.

The current HMRC investigations under MSC legislation have been utterly devastating to around 2,000 contractors who are in receipt of these determination notices.

The decision to launch these investigations and the subsequent way that these investigations have been carried out – which we believe has been deeply unfair and aggressive – seemingly comes without proper supervision.

The decision to go after the clients of specialist accountancy services providers is one that should surely come from a Secretary of State, well-versed in the details of the legislation and the arguments ‘for’ and ‘against.’ The Revenue should not be able to simply pursue cases against taxpayers that test the scope of an exemption.

Playing devil’s advocate

HMRC has a hard job to do, and a crucial one.

Arguably, collecting tax is more complicated now than ever before. The workforce is changing, there are any number of tax avoidance schemes to watch out for, and many more people are using technology to generate ‘side-hustle’ income.

At the same time, HMRC is trying (rightly) to drag itself into the 21st century and make its own systems digital, along with everyone else’s. (N.B, closing the helplines as significantly as HMRC proposed was initially justified by tax officials as them needing to drive users towards its digital services).

On top of this, the government understandably and somewhat desperately needs the money that HMRC collects.

But taxpayers must feel they are being treated fairly and that they can access help with their tax returns when they need it.

A minister must oversee HMRC, as IPSE’s manifesto for the 2024 general election will state

At IPSE, we’re currently in the process of drafting the IPSE manifesto ahead of the general election this year. We will be including a recommendation that HMRC requires ministerial oversight for it to function effectively.

It seems one former leader of the Conservative Party, Sir Iain Duncan Smith, is at least likely to be sympathetic to our position.

Speaking before the latest HMRC U-turn, which is in addition to its U-turn on double cab pick-up taxation, the Tory MP told the House of Commons: “One thing…that I discovered in government, and that I have constantly observed, is that HMRC is a very peculiar department.

"HMRC is unaccountable; it is the only department that does not publish accounts every year, so there is no scrutiny of moneys lost or failed to be gained.

“HMRC acts independently, with many civil servants going on radio and television, not reliant on ministers to take the responsibility for them. That has been one of the biggest problems: the backdrop to this issue is that HMRC operates almost with impunity. I have seen ministers come and go at the dispatch box who are told one thing by HMRC, leave their position and then come back and say, ‘I did not know half of the stuff that was going on.’ I simply say that there is a problem with HMRC.”