Chartered Institute of Taxation tells MPs of concerns over HMRC service levels and R&D relief changes

HMRC’s performance standards need to be improved if the tax authority is to play its essential role in supporting taxpayers and businesses, the Chartered Institute of Taxation (CIOT) has told MPs on the House of Commons Public Accounts Committee (PAC).

 

In a submission made to the committee ahead of its hearing with HMRC bosses on 20 October, but only able to be published after the hearing, CIOT also told the MPs:

  • Proposed changes to research and development (R&D) tax credits will prevent some genuine claimants from accessing the relief
  • Complexity and frequent changes to the Coronavirus Job Retention Scheme (CJRS) were the cause of many taxpayer errors in relation to the scheme
  • The Government should take a more systematic approach to evaluation of tax reliefs
  • There is an apparent lack of consistency in decision-making following time to pay arrangement requests

 

The short inquiry is expected to lead to a report from the PAC in December or January.

 

HMRC customer service performance

 

In the submission CIOT told the MPs: “We continue to be concerned about the difficulties both advisers and taxpayers face getting timely responses and action from HMRC. We are concerned that staff numbers within HMRC are being cut in anticipation of securing savings from digitalisation when these savings have not yet been realised. HMRC’s performance standards need to be improved if the tax authority is to play its essential role in supporting taxpayers and businesses.”

 

During the hearing SNP MP Peter Grant challenged the HMRC officials over the decline in HMRC customer service levels, and asked when ‘efficiency savings’ become cuts in customer service levels.

 

R&D credit reliefs error and fraud

 

In the submission CIOT told the MPs that the Institute shares the National Audit Office’s concern over abuse of R&D tax relief and is supportive of government efforts to crack down on such abuse. “However, we are concerned that some of the measures being proposed [in the forthcoming Finance Bill] will prevent genuine claimants from accessing the relief to which they are entitled, while not necessarily leading to a significant reduction in abuse.” In particular, CIOT said it does not support the proposed measure that would require companies to inform HMRC of their intention to make a claim within six months of the end of the period to which the claim relates, rather than the current two years.

 

CIOT said: “This measure is poorly targeted because, although it will prevent some dubious claims, it will also mean that many genuine claims will fall out of time. It will exacerbate an existing unfairness that can arise between taxpayer companies that undertake R&D activities, based on whether or not they have an awareness of the tax relief rules at the appropriate time. It will disproportionately hurt smaller and newer companies – the kinds of companies that may only get tax advice during the year end compliance process (and often after the six-month window for pre-notification), rather than all year round.”

 

Labour MP Olivia Blake raised this point during her questioning of HMRC officials, citing the CIOT’s evidence. Responding, HMRC chief executive Jim Harra acknowledged that policing error and fraud risks while making sure that legitimate claimants can access them “is a balancing act” and said that HMRC would be “looking at how that and the other measures work in practice”.

 

Coronavirus Job Retention Scheme error

 

In the submission CIOT stated: “Given the complexity of the CJRS, the speed of its introduction, and frequent changes to its rules, the level of errors is not a surprise. It was particularly hard for smaller employers to obtain reassurance from HMRC that they were claiming correctly.” The Institute notes that its experience is that often HMRC staff themselves struggled to keep up with the changes.

 

CIOT added: “We regret that the Treasury Directions given to HMRC provided no discretion for the tax authority to exercise its care and management powers, particularly for cases where employers were acting in good faith and in pursuance of the stated objectives of the CJRS.”

 

Management of tax reliefs

 

In the submission CIOT stated: “We are pleased that HMRC has improved how it reports on tax reliefs, but the way this information is presented makes it difficult to analyse. Additionally too many reliefs remain uncosted. When a relief is introduced, there should be a mechanism to obtain sufficient data to monitor its cost. The Government should take a more systematic approach to evaluation of reliefs.”

 

Revenue collection and debt

 

In the submission CIOT stated: “Usage of time to pay arrangements (TTPAs) still seems low. Our members report that it seems quite difficult to get a TTPA now unless one is able to apply via the online route. We are also concerned about a lack of consistency in decision-making following a TTPA request.”

 

Other issues raised by the CIOT in its 16 page submission to the PAC included personal tax credits error and fraud, the tax gap, tax simplification, use of data analytics by HMRC and repayment agents.