HM Revenue & Customs should explain why it cannot help freelancers and others excluded from coronavirus support schemes and set out steps to overcome the obstacles, the House of Commons Public Accounts Committee said.
The committee recognized that HMRC has provided more than £80 billion as part of a wider package in support to businesses and individuals. But “quirks in the tax system” have left whole groups of taxpayers without financial support, it noted in a January 20 release.
The government responds to the Public Accounts Committee’s recommendations in Treasury minutes. The House of Commons Treasury Committee was set to hear evidence from tax professionals on the gaps in government support later on January 20. Separately, the Association of Chartered Certified Accountants (ACCA) said some accountants were dismayed at HMRC’s refusal to extend the January 31 tax return deadline.
‘The System Is Going to Struggle’
COVID-19 has put “a huge strain” on HMRC's day-to-day operations, with a significant impact on the department’s performance “evident in falling tax revenues, poorer customer service, reduced compliance activity, and increased debt balances,” the Public Accounts Committee concluded as it published its report on HMRC’s performance. HMRC spends too much time “patching up out-of-date and potentially risky IT systems” rather than modernizing them, it said.
“As public spending balloons to unprecedented levels in response to the pandemic, out-of-date tax systems are one of the barriers to getting help to a significant number of struggling taxpayers who should be entitled to support.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," committee Chair Meg Hillier said.
The committee noted that, before the pandemic, HMRC “already faced a number of strategic challenges” including its plans to transform the tax system and preparations for the end of the Brexit transition period. HMRC will need to review “whether it has the resources and capacity to deliver on all of its commitments,” it concluded. HMRC’s estate strategy — which involves leasing large properties in regional centers — risks becoming “woefully out of date” in the wake of the pandemic, the committee argued.
Off-Payroll Legislation
The committee’s inquiry found that some self-employed taxpayers may have been put on payrolls because of IR35 legislation, but were not employed at the relevant time for the coronavirus job retention scheme (CJRS), so they lost eligibility for government support. Some could have claimed grants under the self-employment income support scheme if they had not been put on a payroll, while other freelancers, with “verifiable employment and tax records visible to HMRC,” may have been excluded from the CJRS, the committee said.
“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,” the committee added.
HMRC should publish within six weeks an explanation of the obstacles that prevent it from providing support to freelancers and others and should consider what support can be provided to those who have been moved on to payrolls, the committee said, adding that a lack of certainty about the COVID-19 support schemes has undermined businesses’ ability to plan effectively.
“HMRC has never clearly explained the obstacles to getting support to these groups, and we welcome the Public Accounts Committee’s calls for it to do so,” said Andy Chamberlain, director of policy at IPSE, the Association of Independent Professionals and the Self-Employed. “We also believe it is absolutely right for the committee to push HMRC to outline steps to overcome these obstacles and get support to the many self-employed who are still desperately struggling.”
More Support Needed 'Ahead of the Budget’
Throughout the pandemic, HM Treasury has “listened and acted swiftly to offer businesses a lifeline,” the Confederation of British Industry (CBI) said in a January 19 release. “But with the latest lockdown squeezing cash flow and demand like never before, business resilience is at an all-time low,” it said.
The CBI set out support measures “needed in the next few weeks, ahead of the budget, to help protect U.K. companies through the spring.” Chancellor of the Exchequer Rishi Sunak has indicated that any additional support measures will not be announced before the March 3 budget.
The CBI recommended an extension of the CJRS beyond April to the end of June, and a commitment to “targeted support thereafter to give firms the certainty they need to protect jobs.” It called for longer repayment periods for existing VAT deferrals, for firms to be allowed to defer VAT bills for the first quarter of 2021 for 12 months, and for an extension of the business rates holiday “for at least another three months to those U.K. firms forced to close under current restrictions and expanding relief to their supply chains.”
Tax Return Deadline
Accountants are dismayed that HMRC is refusing to extend the January 31 deadline for self-assessment tax returns, the ACCA said in a January 19 release. “ACCA has lobbied HMRC for a rethink on behalf of its members and the businesses they support. However, so far HMRC insists the £100 [late filing penalties] will be issued and then the ordinary appeals process followed,” it said.
“Given the fact that we now have a further national lockdown, the results from our latest survey post the lockdown announcement, the increased need for individuals to isolate, and the worsening response times to queries raised with HMRC, we would urge HMRC to reconsider and extend the deadline until the end of the tax year in order to provide relief for struggling businesses,” said Glenn Collins, the ACCA’s head of technical advisory and policy.
The ACCA quoted accountant Richard Halsey as saying his firm now “has to spend on average three days trying to reach HMRC on webchat just to make contact” because letters and calls are going unanswered. “That is one of the main reasons we are behind in filing — my staff are simply having to spend disproportionate amounts of time dealing with HMRC issues and assisting with the various government COVID schemes,” Halsey said.
The Institute of Chartered Accountants in England and Wales published a January 18 letter from HMRC Chief Executive Jim Harra to several professional bodies. “Our position remains that we want to encourage as many people as possible to file on time, even if they can’t pay their tax straight away. . . . We will continue to encourage timely filing in our communications. Any departure from this simple message increases the risk that taxpayers will miss both filing and payment deadlines unnecessarily or miss out on the simple arrangements we have put in place for securing time to pay,” Harra said.
The institute noted that Harra acknowledged that some taxpayers and agents will struggle to meet the deadline and said “that HMRC continues to consider how to support those in this situation.”
“Filing rates are still holding up well. We will continue to keep the situation closely under review between now and the filing deadline. We will not start to issue penalties until we have completed our review of the options and monitoring of filing rates and confirmed which approach we will take,” Harra added.