‘Cracks showing’ in HMRC performance under Brexit pressures

MPs are warning 'cracks are showing' as HMRC seeks to manage a ‘daunting’ workload in advance of Brexit, with mounting concerns about the possible impact of delays introducing its new customs system on businesses adapting to a new VAT regime

The public accounts committee (PAC) report on HMRC’s performance 2017-18 levels a number of criticisms at the department, including failure to reduce the level of fraud and error in tax credits, poor understanding of how tax reliefs work, and customer service targets which are too narrow.

The committee’s biggest concern centres on further delay to HMRC’s new customs declaration service (CDS), which means that it is very unlikely to be ready for exporters by the time of Brexit, and the need for further development of HMRC’s systems so that by March 2019 they can handle postponed accounting for import VAT in the event of no deal.

PAC chair Meg Hillier has written to HMRC CEO Jon Thompson underlining the risks, emphasising concerns that he has given ‘no assurance that HMRC has a plan to ensure that businesses are aware of what they will need to do’ if the UK leaves the EU without an agreed deal.

Hillier has asked for an immediate update on the level of business understanding and preparedness for changes in customs rules and procedures if there is no deal and has highlighted particular concerns about the 100,000 small traders HMRC does not engage with directly as it does not know who they are.

PAC’s report takes HMRC task over its failure to deal with the longstanding issue of error and fraud in tax credits, which saw £1.3bn lost in 2016–17 alone.

It states: ‘It is very disappointing that HMRC expects the rate of overpayments to increase and exceed its target to keep error and fraud below 5% of tax credit payments.

‘Our concerns last year that HMRC lacked an incentive to reduce error and fraud in tax credits have now come to fruition. HMRC has de-prioritised action to reduce error and fraud because tax credits are being replaced by universal credit.’

The committee also says there are too many reliefs where HMRC has only a limited understanding of whether they represent value for money.

The report raises additional concerns about the variable standard of PAYE administration by employers and pension providers. It argues poor administration leads to errors in tax collected, causes problems for taxpayers and results in errors in tax credits and universal credit payments. HMRC says it has tried to encourage employers to improve administration of PAYE but considers it does not have the sanctions to tackle the issue effectively.

PAC also found that HMRC’s customer service targets are too narrowly focused and do not help it understand the overall quality of service it provides to individuals and to businesses. It said HMRC had admitted that its current customer service targets are narrow and ‘do not really measure quality at all’.

HMRC told the committee it expects to report on the balanced scorecard of measures from spring 2019. PAC has specifically ask that this should include the time taxpayers spend in the automated system before a call is answered, which is currently omitted from the performance measurements.

The tax authority has also confirmed that it will set out how it was planning to present information on the time callers pend in the automated system in its next annual report.

Hillier said: ‘HMRC is under pressure and in some areas the cracks are showing.

‘It lacks understanding of the costs of a vast swathe of tax reliefs, which means it cannot take an informed view on their value for money.

‘HMRC’s customer service targets do not fully reflect the customer experience, undermining its ability to plan and deliver these services effectively.

‘And, as we have recorded elsewhere, serious concerns remain over the new customs declaration service and operations at the border after Brexit.

‘Our committee recognises the scale of the challenges facing HMRC and the time-critical nature of its Brexit work. But the authority must not lose sight of its wider responsibilities to UK taxpayers.’

HMRC’s performance in 2017-18

PAC chair letter to Jon Thompson

Report by Pat Sweet

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