HMRC accused of deliberately poor service and damage to public confidence in tax system - PAC report

HM Revenue & Customs (HMRC)'s already poor service to taxpayers has become even worse. In a report published today, the Public Accounts Committee (PAC) urges the tax authority to take responsibility for how it has failed its customers, and to act with greater boldness to tackle tax system abuse and to more effectively pursue the debts it is owed.

In 2024, a PAC report warned that HMRC's customer service levels had reached an all-time low. This decline of six years has continued, with 66.4% of customers' attempts to speak to an adviser answered and average call waiting times exceeding 23 minutes. Written evidence to this year's PAC inquiry paints a picture of the tax authority's continual failures now eroding trust in the system, with the report warning that services are set to deteriorate further if HMRC struggles to meet further increases in demand from customers.

The PAC is concerned that HMRC has degraded its own phone services - willing to let them fail, in the hope that people will be forced to go online. HMRC has said that encouraging customers to switch to digital frees up its lines for vulnerable people and more complex cases. But the report warns that phone access has been restricted before digital services are ready. It further notes that not all services are available online and do not offer the reassurance people need, with HMRC accepting to the PAC's inquiry that it is behind many other organisations in providing customers a secure digital messaging service.

The report also calls on HMRC to set out a plan for how it will collect older debts owed to it before they become uncollectable, raising concerns that these are not being effectively pursued. HMRC told the PAC's inquiry that it is focused on pursuing high levels of new tax debt (largely driven by small businesses' cashflow issues), which are easier to collect. In 2023-24, £5bn in debts were written off as uncollectable by HMRC, up from £3.2bn in 2022-23, with a risk this could apply to an estimated 45% of debt owed to the public purse.

While HMRC's new goal to reduce rather than just maintain the tax gap* is welcome, the report calls on the tax authority to be bolder in identifying and tackling abuse. The report recommends an improved understanding of the offshore tax gap, which is currently estimated at an implausibly low £0.3bn. HMRC is also not doing enough to tackle deliberate cases of non-compliance. The report raises concerns over decreasing rates of criminal investigation and prosecution, in favour of focusing on the most serious and high-value cases. The PAC recommends that HMRC undertake research into what the most effective deterrent may be for tax evaders and organised criminals.

Sir Geoffrey Clifton-Brown MP, Chair of the Committee, said: “Given that citizens have no choice but to engage with HMRC, it has a responsibility to aspire to the highest standards of service. Unfortunately, what we have instead is a tax authority excavating its way to new lows in service levels every year. Worse, it seems to be degrading its own services as a matter of policy. HMRC is an organisation in defensive mode, and needs bold and ambitious leadership to begin to chart its recovery.

“There is some hope in our report. HMRC has now secured more funds to allow it to pursue what's owed to it, and has a welcome new goal to reduce the gap in unpaid tax. We would urge it to use its new resources not to just go after low-hanging fruit, but to do more to recover older debts lest they become uncollectable, as well as to better understand what more may be hidden offshore. Further, if it is serious in its plans to reduce its prosecutions, it should also explain what the best means of deterring criminal tax evaders may be.”

PAC report conclusions and recommendations  

In providing telephone services, HMRC does not give enough consideration to the needs of customers. Taxpayers have no choice but to engage with HMRC. This places an onus on HMRC to provide a reasonable level of service. However, it last met an annual target for telephone services in 2017-18. In 2023-24, performance reached an all-time low, with 66.4% of customers' attempts to speak to an adviser answered, against a target of 85%, and average call waiting times exceeding 23 minutes. We received numerous written submissions from organisations representing taxpayers and agents saying these continual failings in customer service had eroded trust in HMRC. In the first 11 months of 2023-24, HMRC cut off nearly 44,000 customers that had been waiting 70 minutes to speak to an adviser because its system cannot cope with so many customers waiting in the call queue. It did not warn customers that their call would be cut off, nor did it call them back. It cannot provide customers with real time information on call waiting times, only the average from the previous day, and we question how it manages its telephone service without this information. HMRC blames the limitations on its telephone platform and says it will be procuring a new platform soon.

Recommendation 1. HMRC needs to put customers' needs at the heart of its decision making, including those of small businesses which are different to individual taxpayers. HMRC should particularly address the needs of those trying to speak on the telephone. HMRC should re-instate a call waiting time target as a key performance measure. It must also ensure it gives customers accurate estimates of call waiting times in real time, does not cut off customers without warning, and offers a callback service. It must ensure this functionality is a requirement when it procures a new telephone service.

HMRC's digital services have not sufficiently reduced demand on the phone and HMRC has failed to prioritise the resources needed to sustain an appropriate standard of telephone service. HMRC has been working to become a ‘digital-first' organisation since 2010 and hopes to replace traditional forms of contact with digital services. However, telephone demand has remained high, with 37 million telephone calls in 2023-24. HMRC says it has not had enough resources to deal with all the contact it has been receiving with, for example, 3 million more income taxpayers in the last two years as a result of freezing tax thresholds. In May 2024, HMRC received £51 million additional funding to cover approximately 1,500 staff for 2024-25 to bring HMRC's customer service to target levels. However, we are concerned that performance will deteriorate again if HMRC struggles to meet further increases in demand from customers. HMRC plans to publish a 'digital roadmap' in Spring 2025 to set out the digital services it is expecting to develop and the investment it needs.

Recommendation 2. HMRC should ensure it allocates sufficient resources to customer service now and in the future to meet its performance targets. It should establish "guard rails" to protect services. Where service levels fall more than five percentage points below target levels this should trigger a corrective response, with additional resources deployed if needed.

HMRC has been too willing to let its telephone services fail in the hope this forces people to use its digital services instead. HMRC estimates 66% of calls it receives could be handled online instead. It hopes that by encouraging customers to use digital services it can free up its helplines for vulnerable customers and customers with complex affairs who need to speak to an adviser. However, not all services are available online, and where they are available they do not always provide the reassurance that customers need. HMRC has been too quick to restrict access to its telephone services before ensuring replacement digital services are fully in place. In 2023, it trialled some helpline closures with only two days' notice to taxpayers, and reversed a decision to close them permanently from April 2024 following criticism from stakeholders. HMRC said it recognises that not everybody can go online and that vulnerable customers may need additional support. It has increased the number of staff supporting vulnerable customers by 20% and has provided £5.5 million additional funding to community and voluntary organisations.

Recommendation 3. HMRC should ensure it understands how far its digital services can replace telephone services and what level of telephone service it needs to retain to meet customers' needs - including those of small businesses. HMRC should ensure it meets a minimum level of service for all customers, including those 7 million customers HMRC estimates can't use digital services.

HMRC does not provide an efficient means for taxpayers to communicate digitally with HMRC. In 2022-23, HMRC received 22 million items of correspondence, including physical post and forms and interactive forms. Approximately 70% of this comes in through the post. Postal correspondence, as well as some electronic correspondence, requires scanning, manual entry into HMRC's systems, or both. In the past HMRC has faced large backlogs in processing its correspondence, clearing only 45.5% in 2021-22 within 15 working days of receipt. HMRC's performance improved to 76.3% in 2023-24 but was still below its target of 80%. HMRC also posts a lot of correspondence itself, spending £68 million on postage and print costs in 2022-23. HMRC said it has used emails with customers sparingly due to security concerns, but it has made little progress in developing alternative secure ways for customers to share information with it electronically. It acknowledges it is clearly behind many other organisations in providing the ability for customers to securely message HMRC digitally. It says that it envisages customers doing this more through the HMRC App and the Personal Tax Account, and is seeking investment for this development as part of its 'digital roadmap'.

Recommendation 4. As part of its digital roadmap, HMRC should prioritise introducing systems for customers to submit files and send secure messages electronically to HMRC. This should enable savings which can be recycled into improving its service.

HMRC's investment in debt management has not sufficiently reduced the amount of tax owed to it. In 2023-24, the government announced £303 million additional funding for HMRC to improve its capacity to manage tax debts. This followed £47.2 million announced in 2022-23. Despite this investment, the tax debt balance fell only marginally in 2023-24, from £43.9 billion at 31 March 2023 to £43.0 billion at 31 March 2024. This is still much higher than the five years before the pandemic, where tax debt was typically around £15 billion. HMRC is still seeing high levels of new tax debt, largely driven by small businesses' cash flow issues. HMRC says its efforts are focused on pursuing these new debts, which are easier to collect. We are concerned, though, that HMRC is not effectively pursuing older debts. It has estimated it may not be able to collect 45% of established taxpayer liabilities not yet received. In 2023-24, HMRC wrote off £5.0 billion of debts as uncollectable, an increase from £3.2 billion in 2022-23. HMRC expects the amount of write-offs to remain high in 2024-25 as the impact of the pandemic on insolvencies continues to work its way through the criminal justice and tax systems. In the 2024 Autumn Budget, HMRC received funding for 1,800 more debt management staff.

Recommendation 5. Now that HMRC has secured even more resources to manage the debts owed to it, it should set out what reduction in the debt balance it is aiming for and by what date, and a plan for how it will recover older debts before they become uncollectable.

We welcome HMRC's new goal to reduce the tax gap but we are concerned that it still plans to reduce the number of prosecutions.HMRC expects to bring in £6.5 billion additional tax revenue by 2029-30 as a result of measures set out at the Autumn Budget 2024, and has funding for 5,000 additional compliance officers. However, it could not tell us how much this will reduce the tax gap. HMRC has published experimental statistics on the offshore tax gap, but admits this is not a complete measure. At £0.3 billion we are concerned HMRC's estimate looks implausibly low and that there is no way of making an accurate estimate. We are also concerned that HMRC is not doing enough to tackle deliberate cases of non-compliance. HMRC can use civil processes to sanction non-compliance, but its use of criminal investigation and prosecution is decreasing, and there were only 344 criminal prosecutions in 2023-24, compared with 691 in 2019-20, with HMRC focusing on the most serious and high-value cases. We are concerned that HMRC is not using the criminal enforcement tools at its disposal. There have never been any prosecutions under the criminal facilitation of tax evasion offence. The number of HMRC investigations into serious tax fraud and avoidance has fallen to a six-year low. HMRC is examining the deterrent effect of criminal investigations and prosecutions to understand their effectiveness in recovering tax.

Recommendation 6. Now that HMRC has been tasked with reducing rather than just maintaining the tax gap, it must be bolder in identifying and tackling abuse. HMRC should:

1. a) set ambitious targets for compliance yield that would allow it to achieve annual reductions in the tax gap;
2. b) obtain an estimate that is as accurate as feasibly and practically possible of the offshore tax gap and develop a standalone strategy to reduce it; and
3. c) research which interventions are most effective in achieving a deterrent effect for tax evaders and organised criminals. This research should explicitly consider whether there are trade-offs between civil and criminal routes, if the former brings in more revenue in the short term but has the effect of decreasing the deterrent effect of criminal offences in the long run.
4. d) HMRC should develop a strategy to maximise effectiveness of both civil processes and criminal prosecutions and consider setting a target for prosecutions.

Notes to Editors: 

*The tax gap is defined as the difference between the amount of tax that should be paid to HMRC, and what was actually paid.