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HMRC juggles its accounting balls

Wendy Bradley takes a closer look at what HMRC’s annual report and accounts for the year to 31 March 2020 tell us, and which statements are spinning balls.

4th Jan 2021
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HMRC accounts illustrate 2019-20 juggling act

The “balls” in question feature in HMRC’s 2019-20 annual report and are represented by the three circles in the diagram above: HMRC’s own costs; the costs it imposes on the taxpayer; and the tax it brings in and pays out.

The annual report is divided into these three sections.

Tax ball

This is the “Trust Statement” which summaries the tax collected, which is HMRC’s core activity. The audit on this part of the accounts is unqualified, but look a little closer...

Tax errors

As happens every year, the National Audit Office analysis comes up with a number of errors, including these examples:

  • An error in the corporation tax receipts calculation that is so serious that the Office for Statistics Regulation was called in to give advice on it.
  • An EU infraction case, in which the EU Commission alleges that the UK failed to prevent undervaluation fraud involving Chinese textiles and footwear from 2011 to 2017.
  • A £11m write-off of VAT relating to a VAT-registered company with no UK presence. “The trader is untraceable and therefore recovery action is not possible.” That’s half a Brinks Mat – hopefully there was more to the investigation than returned post and a shrug.

Data worries

On cybersecurity the report comments: “A 12 to 18 month rapid remediation programme will reduce cyber risk exposure to tolerable levels.” Wait… does that mean cyber risk is currently at intolerable levels?

How is HMRC protecting the privacy of those of us who have no option but to have our data on their system? The tax department admitted to 26 data breaches in the year and confessed: “Despite making progress in identifying our GDPR risks, insufficient progress has been made to remediate those risks, leaving HMRC and the tax and benefits system exposed.”

Hmmm, I am not filled with confidence.

Legacy systems

HMRC also has “critical levels” of “technical debt”. The second quoted phrase refers to platform or estate-wide capabilities (computer systems) that have not been built, infrastructure that has not been updated, old services that have not been retired and system builds that have not been completed.

So, the tax ball is all good, except when it isn’t, and we need new and better computers.

Costs ball

This is HMRC’s costs, staffing and processes, shown in the “resource accounts” section of the report, which are qualified for three reasons:

  • Tax credits error and fraud: this is a perennial problem, described as being due to the design of the system. But, reading between the lines, as tax credit claims are being transferred over to universal credit there doesn’t seem to be much being done to rectify the issues, leaving it to time to phase it out.
  • Research and development tax relief error and fraud: this is a newly identified issue and is rather speculative, but work on the tax gap seems to have thrown up a potential for error and fraud issues of up to 5% of the total.
  • A £750,000 accounting error, embarrassing but not fatal, which resulted in someone having to explain to the Treasury why they had made a mistake in working out voted and non-voted funding.

Staffing

The report describes putting staff into centralised regional hubs in the “better place to work” category.

This seems to be a very odd paragraph – surely HMRC should be proud of turning on a sixpence to let staff work at home during the Covid-19 pandemic, and talking about continuing that flexibility once the crisis has passed?

Taxpayers’ ball

There used to be a mandatory chapter in HMRC annual reports on administrative burden reduction (last seen in 2016-17), including notes on the level of scrutiny provided by the Administrative Burdens Advisory Board.

In 2016/17 the ultimate target identified for March 2020 was to reduce business costs by £400m per year by March 2020 as part of the government’s commitment to reduce red tape for business by £10bn. “We have delivered net reductions of £29m towards this target to date,” the department reported in 2017.

Maybe HMRC doesn’t do that anymore?

Customer service measures

Instead of quantifiable admin burden reduction the report includes some hesitant steps towards quantifying customer service levels.

The Public Accounts Committee recommended that HMRC should, by the start of 2019-20, develop and report a scorecard of performance measures that gives a broader overview of the customer experience of both businesses and individuals.

In response HMRC reports that it met three out of its eight customer service targets in 2019-20. Perhaps the admin burden wasn’t such a bad measurement after all.

Hidden gem

The Treasury Select Committee has held hearings into this report, during which it unearthed some useful advice on the automatic £100 penalty for late tax returns which may be worth passing on:

“If they [unrepresented taxpayers] think they are not going to be able to make the 31 January deadline, should they call you up in advance and explain their circumstances and ask you to waive the £100?”

In answer to this query, HMRC chief executive Jim Harra replied:Yes, it is much better to contact us in advance to explain that you will not be able to comply. There is an ability for our agents to change the due date on our systems for when they expect the return, which would then in turn suppress the issue of the penalties. That is better than receiving a penalty notice and then worrying about whether we are going to insist that you pay that.”

Conclusion

In the triangle and balls chart there are reasonable numbers in each of the balls, but what goes in the middle?

That section of the diagram comprises the things which influence the three ball areas. “Business as usual” would go there and clearly the department is managing to carry on regardless in difficult circumstances.

For 2020 and 2021 there should also be written here: “BREXIT” and “COVID” in big, unfriendly letters.

Replies (9)

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By richard thomas
05th Jan 2021 11:53

Spot on as usual, Wendy.

Thanks (2)
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By johnjenkins
06th Jan 2021 10:19

Great ain't it. Jimbo says it's an easy job to put an indicator on a return to waiver the penalty yet when asked about extending the 31st Jan deadline because of covid, he says it's too complicated. What a tossa.

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Replying to johnjenkins:
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By the_Poacher
06th Jan 2021 17:32

Changing computer systems might cost a lot of money snd a whole scale moving of the filing date might mean that taxpayers who would otherwise have met the 31/1 deadline won’t bother. A case by case consideration seems sensible

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Replying to the_Poacher:
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By johnjenkins
07th Jan 2021 09:17

You know as well as I do a case by case consideration means HMRC will be looking for loopholes so that the penalty will stand, that's exactly why they are not having a blanket extension. These are not normal times for business so common sense has to be applied. The FTT could be inundated with appeals let alone the bad feeling caused. Yes of course there will be a few who take advantage but that will happen in any scenario.

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David Ross
By davidross
06th Jan 2021 10:21

"There is an ability for our agents to change the due date on our systems for when they expect the return, which would then in turn suppress the issue of the penalties"

How, please?

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Replying to davidross:
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By the_Poacher
06th Jan 2021 17:35

I think by agents he means operators of computers in HMRC call centres flogging away for the national minimum wage

Thanks (1)
Replying to davidross:
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By richard thomas
06th Jan 2021 17:53

A good question. They can't actually change the due date of course because that would be changing the law. In a number of appeals against penalties for late filing that I heard the papers showed that when people phoned HMRC to give a reasonable excuse before the filing date, the officer would change the due date shown on HMRC's SA computer, so that the weekly sweep for late filing penalties would not pick it up until after the date on the system. In other words they are saying:
"We accept you have a reasonable excuse, but unless you file by x date we will take it that the excuse has ceased."

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By Hugo Fair
06th Jan 2021 10:27

One of the best, and least biased, articles I've read on AW. But if the Treasury Select Committee knows all this and reports on it, why isn't the feeble national press (or indeed BBC) reporting the findings?

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Replying to Hugo Fair:
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By 4b4
06th Jan 2021 15:54

Hugo Fair wrote:

One of the best, and least biased, articles I've read on AW. But if the Treasury Select Committee knows all this and reports on it, why isn't the feeble national press (or indeed BBC) reporting the findings?

Er, because it's not politically expedient?

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