Trouble at the tax authority

It has been a chastening few months for HMRC with customer service levels dipping to an all-time low and criticism mounting from politicians, taxpayers and business.

Problems have ranged from the availability of phone helplines, the reversal of big decisions regarding tax and support for taxpayers, the ongoing saga of Making Tax Digital (MTD) and the complexity of IR35. Here we take a look at the issues plaguing HMRC and giving taxpayers headaches.

Taxpayer exasperation

HMRC's customer service levels are at an all-time low, according to a recent critical report published by Parliament's Public Accounts Committee (PAC). The PAC expressed its disappointment in the five-year decline of the service levels and said it had seen ample evidence of 'taxpayer exasperation'.

The PAC said that against a backdrop of a rising population and an increase in the complexity of people's tax affairs 'HMRC is apparently struggling to cope'. It noted that HMRC still fell £2 billion short of its £36 billion target for compliance yield while there has been a significant reduction in criminal prosecutions by HMRC, from 691 in 2019/20 to 240 in 2022/23.

The PAC has also accused HMRC of 'Making Tax Difficult' for taxpayers as MTD adds to the burdens they face.

It said that while MTD will 'substantially benefit' HMRC by improving its systems, taxpayers are asked to spend more and do more in order to be compliant.

Waiting on hold

The accessibility of HMRC's advisers by phone is a major point of contention. The PAC found that 62.7% of callers waited more than 10 minutes to speak to an adviser during 2022/23.

HMRC told the PAC's inquiry that it did not have the resources to meet rising demand for its phone services and its own figures show that the wait time had risen to 24 minutes by February this year. Unsurprisingly, that month also saw over 650,000 calls to the tax authority abandoned before being answered.

HMRC is directing callers to use digital services which it insists are good quality. However, the PAC received a lot of evidence to the contrary from taxpayers and their agents. 

As part of this process HMRC planned to close its self assessment helpline for six months every year while also reducing the availability of its VAT and PAYE helplines.

However, such was the backlash to these announcements that the tax authority reversed these decisions within 24 hours.

HMRC said it was halting these plans 'in response to the feedback while it engages with its stakeholders about how to ensure all taxpayers' needs'.

Flip flopping

The rollback of the helpline withdrawal was the second time in a matter of weeks that HMRC had reversed a decision in short order.

Just a week after HMRC released guidance that classed double-cab pickups as cars rather than vans, the government reversed the decision.

On 19 February, HMRC confirmed that it's reversing the updated guidance announced on 12 February, meaning that double-cab pickups will continue to be treated as goods vehicles rather than cars.

It reversed course after listening to concerns from farmers and the motoring industry on the impact of the changes to the tax treatment.

Bearing the brunt

Unfortunately, this example of businesses being listened to appears to be the exception rather than the rule.

In a recent survey of members of the Association of Chartered Certified Accountants (ACCA), 66% said that poor HMRC services were having a negative impact on their clients, with small businesses 'bearing the brunt' of this issue.

This is a 14% increase in negative sentiment from the previous ACCA survey in October 2023, demonstrating that SMEs are 'reaching breaking point with the service'.

Tough approach

One area highlighted by the PAC is the scrutinised issues around the IR35 rules on off-payroll working.

The PAC said it is concerned that HMRC's approach to tackling IR35 is deterring legitimate economic activity, and that a lack of confidence in how to apply the rules, together with HMRC's tough approach when taxpayers make mistakes, is unnecessarily putting companies off using contractors.

This was reinforced by research published by the Association of Independent Professionals and the Self-Employed (IPSE).

IPSE's survey of more than 1,300 contractors in highly skilled roles found that 21% are not currently working, with half of them attributing this to the impact of reforms to IR35 tax rules.