‘Cracks are showing’ as HMRC juggles Brexit prep and day-to-day business, MPs find

Written by Jim Dunton on 5 November 2018 in News

Fraud and error rates predicted to rise and IT system to manage exports ‘very unlikely to be ready’ for Brexit, according to Public Accounts Committee

Members of parliament’s Public Accounts Committee have expressed concern about HM Revenue & Customs’ ability to handle – and improve its performance with – the department’s core tasks as it prepares for multiple Brexit contingencies.

In a new report, the committee accepted that bosses at the tax-collection agency had been forced to make choices about how ongoing work was delivered while preparations for the UK’s departure from the European Union were made. 

MPs said the “daunting workload” was resulting in dual risks that customs and borders IT systems would not be ready to cope with a no-deal scenario in March next year, while progress on other key areas of work was de-prioritised.

The PAC report said HMRC was currently projecting that its error and fraud rate with Tax Credits would rise to 5.5% in 2017-18, when final figures were available, and to 6% in 2018-19. The target is 5% and 2016-17’s actual figure for overpayments was 4.9% – representing a £1.3bn loss to government coffers.

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MPs also said HMRC did not appear to have been adequately involved in Department for Business, Energy and Industrial Strategy plans to create a register to help tackle compliance risks associated with new mandatory reporting requirements for multinational enterprises.

They said the HMRC was not doing enough to develop the way it measured its customer service, and that its targets – some of which were not hit in 2017-18 – were “too narrow” and “did not provide a full picture of performance”.

MPs added that HMRC did not know whether a large number of the 424 tax reliefs currently available were value for money. They said that while 105 of the reliefs cost £416.8bn in 2017-18 and a further 80 were estimated to have “nil or negligible cost”, the cost of the remaining 239 reliefs was not reported because the cost of collecting the data was considered “disproportionate”.

PAC chair Meg Hillier said committee members were concerned about the ability of HMRC to deliver its new Customs Declaration Service ahead of 29 March next year, and which the report said was “very unlikely to be ready for exporters by the time of Brexit”.

But she insisted that the department – which had around 65,000 staff as of March this year – could still take practical steps to better safeguard public money.

“HM Revenue & Customs is under pressure and in some areas the cracks are showing,” she said.

“Our committee recognises the scale of the challenges facing HMRC and the time-critical nature of its Brexit work. But the authority must not lose sight of its wider responsibilities to UK taxpayers.

“The authority expects fraud and errors in tax credits to exceed its target in successive years, driven in part by policy changes that have effectively removed HMRC’s incentive to bring fraud and errors under control."

She added that “HMRC’s customer service targets do not fully reflect the customer experience, undermining its ability to plan and deliver these services effectively".

'Unprecedented challenges'
Responding to the report, an HMRC spokesperson pointed to 2017-18’s total tax returns, which marked a 5.4% increase on the previous year, as evidence of the department’s commitment to the nation’s finances. 

“In the face of unprecedented challenges, we have secured a record £605bn to pay for our hospitals, schools and other vital public services,” they said. 

“That includes £30.3bn from enforcing the rules against the minority of firms and individuals who try to get round them – this could fund the NHS across the whole of England for three months.”

On Monday, the PAC is due to grill HMRC perm sec Jon Thompson, Department for Environment, Food and Rural Affairs perm sec Clare Moriarty, Border Force director general Paul Lincoln and HMRC border co-ordination director general Karen Wheeler on Brexit preparedness.

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