HMRC’s end-of-term report shows satisfaction falling

HMRC’s annual report and performance overview 2021/22 paints a picture of an organisation that did its best during the pandemic and hopes to serve effectively in what follows.  But it also reveals that not all in the garden is rosy. 

According to the report, it costs 5p to collect every £1 of tax revenue during 2021/22, and HMRC brought in £731.1bn in the period. Some £30.8bn was generated by tackling avoidance, evasion and other non-compliance. 

But there were downsides.

The number of Tier 1 complaints, the first stage of grumbles received by HMRC, was 80,216 in the year to 31 March 2022. This is higher than the previous year (78,542) and higher than 2020 (65,625). 

Accountants report lengthy delays in responding to queries and complain of a drop in the level of experience among inspectors.

Some say the time taken to reach settlements with HMRC over outstanding tax has also extended significantly. HMRC offered time to pay arrangements during the pandemic, but this is no longer the case and this is creating a backlog of cases.

This does not sit well with HMRC’s vision of becoming a trusted, modern tax and customs department. 

Fraud crackdown

The profession will be watching closely as HMRC ramps up its pursuit of revenue. 

The Government has already invested £100m in the Taxpayer Protection Taskforce to root out furlough scheme fraud. It is expected that many inspectors currently working here will eventually be reallocated to other investigative teams. 

As the cost-of-living crisis increases the pressure to collect, a more aggressive approach to tax collection is expected.  This is already hinted at by the increase in ‘nudge’ letters – generic letters sent out after a common error has been made, asking recipients to amend their tax return – and by reports of more fixed penalties for taxpayers who fail to respond to correspondence within 30 days.

Customer service 

HMRC has introduced new customer service performance measures to meet its strategic objectives. 

Accountants communicate via webchat advisers, telephone agents, iForms and the post, which should be cleared within 15 days of receipt. 

HMRC receives more than 1.5m iForms and items of post, and more than 1.2m require a response. The proportion turned around within 15 days was 65.4% in March 2022 (the most recent figures). This compares with 55.5% in January and just 29.7% in April 2021 (although the basis for gathering these statistics has now changed). 

Overall customer satisfaction with HMRC continues to decline. In April 2021, customer satisfaction with phone, webchat and digital services was 84%. It started to trend downwards throughout the year to 79.9% at March 2022, its lowest level since pandemic pressures eased. 

One difficulty is HMRC is encouraging online communication to speed activity up, but appears ill-equipped to deal with the faster pace of interaction. 

When digital shortcomings are interwoven with long-standing issues dealing with post the result is not pretty. For example, penalty notices are automatically issued by HMRC’s systems and appeals can only be done in writing. But postal backlogs of up to six months lead to penalties being repeatedly appealed because the initial appeal was not processed. 

Crypto learning curve

HMRC needs to increase its knowledge of cryptocurrency. Businesses find it hard to get any help from HMRC in this area. HMRC’s guidance is useful, but legislation is needed as crypto, and NFTs (non-fungible tokens) become more commonplace. 

HMRC will enhance its guidance over the next few months. Until now, it has focused on the taxability of crypto transactions when there are considerable gains. There is less help on how to respond to losses in transactions.

Further areas of concern

The changes to how R&D claims need to be made and how HMRC is notified are a source of ongoing concern. It is likely that R&D claims will receive more scrutiny to ensure companies are actually advancing the knowledge of their particular industry.

This would add more bureaucracy and cost to clients and have a negative impact on smaller claimants. 

Customs is another source of turbulence. Even before Brexit, HMRC was digitising customs movements and documentation in line with EU strategy (‘Making Customs Digital’). This has led to a pipeline of changes. The next step is the replacement of the aged CHIEF customs system with CDS at the end of September 2022 for imports and March 2023 for exports.  It will mean a learning curve for traders and agents – who will hope that CDS can overcome its teething problems.

“If agents and traders are not ready to use it – coupled with continuing teething problems in its operation – we could have a chaotic situation.” 

Albert Goodman’s tax partner, Tracey Watts, says HMRC has produced guidance regarding VAT on products imported from the EU. 

“But client experiences vary enormously,” she says. “Those already importing from non-EU countries and that had existing procedures and relationships in place with customs agents had an advantage.”  

Steve Hemsley Is a journalist, media trainer, and podcast presenter. .