Until a time when all taxes are paid in full, on time through a simple system that requires nobody to administer it, then HMRC will play a pivotal role in the nation’s finances. But there’s mounting evidence that funding and resourcing pressures are reducing HMRC’s effectiveness and impacting adversely on taxpayers.
Imagine a Utopian world in which everybody always paid their taxes in full on time, and where the system was so simple that it did not need anybody to administer it - there would be no need for HMRC. But until that day comes it is in the interests of everybody that we have a highly professional HMRC properly resourced to carry out the vast range of functions which parliament has given it to do.
But cuts to HMRC’s funding call into question whether or not the government really understands this. A recent Public Accounts Committee report describes how HMRC previously outsourced some of the investigation work on fraud and error in the tax credit system to Concentrix, a private sector firm. That contract was then cancelled and the work was brought back in house. But HMRC revealed in evidence that although they had to re-employ most of the staff involved they were not given any additional funding to do so. The minister did not agree to HMRC being given the money which would otherwise have gone to Concentrix. However, that £34m would, on HMRC’s estimate, have produced a further £120m additional revenue from prevention of tax credit fraud.
The exact figures do not matter: what is significant is that here is a clear example of HMRC’s lack of funding hampering its effectiveness. When HMRC was set up in 2005 the two merged departments employed 99,700 staff. Current projections are that by 2021 the number will be down to 50,000. There was almost certainly overcapacity at the time of the merger and new technology will have had an effect, but even so this is a massive reduction in resource, and we question whether or not HMRC can properly function at that level.
The elephant in the room is of course Brexit. HMRC's latest view is that Brexit will increase its workload by 15 per cent but of course that can only really be a guestimate as until the terms of exit are agreed it is impossible to know what work will actually be necessary. But the warning signs are already there. HMRC has candidly admitted that its current transformation programme is not sustainable and is currently re-prioritising its 15 major projects with a view to an announcement by the end of March. It will be interesting to see the results and we look forward to commenting on this later in the year.
Ultimately, we want a strong and effective HMRC. One that doesn’t function properly causes real problems and benefits nobody. But as cracks are starting to show, will we see a cash injection to reinforce its offering?
Of course, to go back to my Utopian dream, in such a world there would be no need for tax advisers either! But I am sure that there would still be a slot for Weekly Tax Brief.
For more information please comment below or get in touch with Andrew Hubbard.