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Hector’s in the dock again

The Public Accounts Committee (PAC) has just published its latest report on HMRC’s performance and it is scathing, accusing the tax authority of being unfit for purpose and “failing UK taxpayers”.

The report’s introduction says:

“The Committee of Public Accounts today highlights serious and ongoing concerns about evasion, avoidance and collection in the tax system”


Meg Hillier MP, the successor to Margaret Hodge as Chair of the PAC, said in a statement: “HMRC must do more to ensure all due tax is paid. The public purse is missing out and taxpayers expect and deserve better.”

“We are deeply disappointed at the low number of prosecutions by HMRC for tax evasion. We believe it is important for HMRC to send a clear message to those who seek to evade tax that the penalties will be severe and public.”

HMRC’s reaction

Reacting to the PAC’s report, a HMRC spokesperson said:

“We are disappointed that the Public Accounts Committee has overlooked HMRC’s record results, which include collecting a record £517bn in tax revenues and further reducing the UK’s ‘tax gap’ – the difference between what is due and what is collected – to ensure it remains one of the lowest in the world.”

John Christensen, executive director of the Tax Justice Network (TJN), was unsurprised by the PAC’s criticism. “HMRC’s resources have been severely depleted, not just by this government but by previous governments as well,” said Christensen. “Adding to this, there is a culture of kowtowing to corporations and financiers at the revenue. There’ve been a number of appointments from the private sector to HMRC that come saddled with numerous conflicts of interest.”

Limited pat on the back

The PAC did, however, comment that it recognised that HMRC had increased the amount of tax collected while also reducing its running costs over the last 5 years; but this compliment was only a brief detour from the report’s whirlwind of criticism.

“Too many avoidance schemes run rings around the taxman, operating legally but gaining advantages never intended by Parliament,” said Hillier. In its report the PAC said HMRC was stifling effective tax policy-making through a lack of transparency. “HMRC does not report on the scale of aggressive tax avoidance, which means Parliament cannot assess whether tax law is working as intended,” reads the report.

“HMRC should identify and report the value of all tax avoidance schemes. It should include an estimate of the value of those schemes it has challenged but which have been judged to be legal by the courts, both so that Parliament can see the scale of avoidance and ensure improvements are made to tax law.”

HMRC’s initial response

HMRC responded:

“We routinely publish the number of tax avoidance schemes, which show a steady decline as a result of tough government action. We brought in more than £1bn from the first year of applying accelerated payments to avoidance cases and have closed many loopholes and secured tough new enforcement powers.”

The PAC, however, is clearly unconvinced by HMRC’s reporting standards.

“HMRC still does not report on how much cash was received as a result of its compliance work or on the scale of aggressive tax avoidance which exploits loopholes in the law,” said the report’s summary. “HMRC also continues to avoid publishing information on the scale and nature of tax reliefs that would assist Parliamentary oversight of this area of the tax system.

“We see no case, other than to avoid accountability, for HM Treasury and HMRC to reject the previous Committee’s recommendations to improve [transparency]…”

Other criticism of HMRC

Meg Hillier Chair of the PAC replacing Margaret Hodges

Meg Hillier Chair of the PAC replacing Margaret Hodges

The PAC is not alone in being frustrated by HMRC’s institutional opacity. Responding to HMRC’s contention that it is unable to offer those figures Jolyon Maugham QC, a barrister specialising in tax called the assertion “absolute twaddle”.

“I have absolutely no doubt that they could take a decent stab at it”, Maugham continued, “and I think it’s thoroughly disingenuous for HMRC to pretend that they can’t.”

Robert Maas, a tax consultant at CBW accountants, agrees with the PAC and Maugham, but commented: “The PAC wants HMRC to work out what the tax paid would’ve been if we hadn’t granted individual reliefs, that’s an enormous job, as our tax system isn’t geared towards that”.

The report’s other big criticism will be familiar to readers of this Blog over the last three years: “HMRC’s customer service is appalling. It beggars belief that, having made disappointing progress on tax evasion and avoidance, the taxman also seems incapable of running a satisfactory service for people trying to pay their fair share,” said the report in one of its most scathing passages.

HMRC’s defence

HMRC’s response to the PAC’s concerns was that its main focus was on “providing a consistent level of customer service throughout the year, rather than meeting annual targets”.

“We explained to the committee that we hadn’t provided a consistent level of customer service in the first half of the year, and we had recruited around 3,000 new staff to improve service levels. But these customer service issues did not affect our ability to collect tax,”

said a HMRC spokesperson.

The PAC noted, however, the consistency of the service is not measured by HMRC’s current performance indicators. “HMRC should report its performance against measures which reflect all its aims, including providing a consistent level of service and ensuring that accurate and complete advice is provided first time.”
For Maugham, the issues raised by the PAC can be split in two. “The abysmal customer service is down to operating in a resource-constrained environment; HMRC has experienced very deep cuts in funding,” said Maugham. “But others – the lack of transparency, this attitude that reliefs don’t need to be properly scrutinised – are cultural and political.”

A Tax Accountant’s View

Image of David Jones Shrewsbury Accountant and Founder of Morgan Jones

The PAC is spot on with regard to the appalling customer service, I experience it daily. However, I do realise that HMRC would have to reassign its critically stretched resources from providing better customer service to producing statistics instead.

What’s needed now is a comprehensive review, with HMRC refocusing its efforts away from the individual taxpayers and small businesses and instead targeting its strength to tackle big companies and Britain’s mega earners, a significant number of which are serial aggressive tax avoiders.

If any of you would like more detailed information on any aspect of UK Tax Returns, send me an e-mail and I’ll be pleased to advise further.