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20 January, 2021 Open access

HMRC must urgently explain why some taxpayers have had no support during Covid-19 pandemic, say MPs

New Public Accounts Committee report finds that 'quirks in the tax system' have prevented significant number of struggling tax payers from receiving support they should be entitled to

HMRC must urgently explain why some taxpayers have had no support during the Covid-19 pandemic, the Public Accounts Committee has said.

Introducing a new report, HMRC performance 2019-2020, the Committee highlights that, since the beginning of the Covid-19 pandemic in March 2020, HMRC has provided more than £80 billion in support to businesses and individuals - including through the Self-Employment Income Support Scheme (SEISS) and Coronavirus Job Retention Scheme (CJRS) - to help as many people as possible as fast as possible.

However, the Committee goes on to find that 'quirks in the tax system' have left some groups of taxpayers excluded from the financial support that other taxpayers received throughout the pandemic -

'We are concerned that some self-employed taxpayers may have moved onto payrolls because of HMRC’s IR35 rules, but were not employed at the relevant time, and so lost eligibility to Covid-19 support schemes. Some of those who moved onto payrolls, because of the pre-emptive actions of employers, could have benefited through the SEISS had they remained self-employed. Similarly, some other freelancers, with verifiable employment and tax records visible to HMRC, may also have been excluded from the CJRS. In some sectors, such as the creative industries, it is common for freelancers to work on a series of short-term employment contracts with gaps in between. HMRC maintains that it has been as flexible as possible, for example, by allowing, for the purpose of eligibility to the COVID-19 support schemes, the extension of short-term contracts and rehiring of employees who were made redundant. Meanwhile, some large companies that have received support from government during the Covid-19 crisis have continued to pay out dividends and high executive salaries.'

As a result, the Committee recommends that HMRC should, within six weeks of the report -

The Committee also finds that HMRC too often struggles to provide reliable and timely financial estimates, so that, for example, it is uncertain what its estimate of fraud and error from tax credits should be, and -

'... it is some way off being in a position to better assess the actual level of error and fraud from the employment support schemes, with planning estimates ranging from 5 per cent to 10 per cent on the CJRS; and it has no estimates of error and fraud from the Eat Out To Help Out scheme, despite the scheme having ended in August.'

As a result, the Committee recommends that HMRC should set out the steps it is taking to ensure its financial estimates are timely and rigorous and, in particular, when it will have an estimate of the actual amount of error and fraud in the Covid-19 grant schemes and its plans for recovering those losses.

Elsewhere the report's recommendations include that HMRC should -

Commenting on the report, Committee Chair Meg Hillier said today -

'Obviously, the national system of revenue collection underpins all public spending and services. As public spending balloons to unprecedented levels in response to the pandemic, out-of-date tax systems are one of the barriers to getting help to a significant number of struggling taxpayers who should be entitled to support. And the system is going to struggle, and in many cases fail, to capture or deal with those wrongly claiming it.

HMRC needs to redress the balance in its spending and use of tech, and get ahead on the basic financial and economic metrics that we need to adapt and respond to this pandemic in real time. There is also a huge question about how our customs and revenue technology at the borders is coping, and will cope in the months and years to come. There isn’t really any breathing space - HMRC’s out of date systems need to catch up fast.'

For more information, see HMRC must urgently explain why some taxpayers have had no support during Covid from parliament.uk