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U.K. Spending Watchdog Flags COVID-19 and Brexit Challenges

Posted on Nov. 9, 2020

HM Revenue & Customs has been at the heart of the U.K. government’s response to COVID-19 and is “prioritizing customer support to protect viable businesses,” it said in a review of its recent performance.

HMRC is committed to supporting businesses through its administration of the government’s financial support schemes and through “managing tax compliance and tax debts in a way that is sensitive to the needs of those businesses,” it said in a November 5 release coinciding with publication of the department’s new charter and its annual report and accounts.

Other priorities identified for the months ahead include supporting businesses beyond the Brexit transition period and helping them to prepare for “the biggest border change for more than 40 years,” HMRC added. In a separate report on Brexit readiness published on November 6, the National Audit Office noted that while government departments have made progress in recent months implementing changes required to systems, infrastructure, and resources to manage the U.K. border, it remains “likely that widespread disruption will occur” from January 2021.

The coronavirus pandemic is having a “sustained impact on compliance yield and debt levels,” HMRC said. Its debt balance increased to £69.5 billion in September, including £37.8 billion arising from the deferral of VAT and self-assessment payments on account.

“The department aims to maintain a consistently high level of customer service but it has been clear that since the start of the pandemic this wouldn’t always be possible. Delivering at pace the level of support required on COVID-19 has inevitably meant resources that would normally be deployed on delivering tax services have been focused on these support schemes instead,” HMRC said.

Tax Revenues

Tax revenues for the year that ended March 31 were estimated at £636.7 billion, an £8.8 billion increase on the previous year, HMRC said. In his report on the accounts, Comptroller and Auditor General Gareth Davies, head of the National Audit Office, noted that the revenue figure represents tax liabilities incurred by taxpayers during the year and includes £138.8 billion of liabilities that had not been paid by March 31.

HMRC noted that the three largest elements of total tax revenue were income tax, National Insurance, and VAT, contributing a total of £473.5 billion. Corporation tax accounted for £53 billion, stamp taxes £15.4 billion, and capital gains tax £10 billion.

Davies noted that HMRC met three of its eight customer service targets in 2019-2020 and developed a broader range of performance measures that “recognize the importance of customer service to the collection of tax revenues due.”

The cost of running HMRC was £3.8 billion. Davies qualified his opinion on the regularity of the resource accounts in relation to estimated overpayments of personal tax credits, and corporation tax reliefs for research and development expenditures, because of error and fraud.

COVID-19 and Brexit

As the coronavirus support schemes come to an end, HMRC will need to “ensure that it has appropriate plans in place to identify, measure, and recover erroneous or fraudulent claims made, as part of its overall plans to return compliance activity to more normal levels when it is safe to do so,” Davies said.

HMRC has a significant role in ensuring that the United Kingdom is ready for the end of the Brexit transition period, Davies observed. “HMRC is responsible for key customs and border-related programs and was the third-highest spending department for work relating to EU exit between June 2016 and January 2020. During 2019-2020 HMRC budgeted £557.6 million for work relating to EU exit and spent £516.9 million,” he said. HMRC’s annual report shows that 6,100 staff worked on EU exit in 2019-2020, compared with 5,400 the previous year, Davies added.

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