28 May 2024

techUK submits evidence on HMRC Customer Service

The Public Accounts Committee held a Call for Evidence on HMRC Customer Service. This follows the Committee reporting in February 2024 that HM Revenues & Customers' (HMRC) overall customer service levels had reached an all-time low. The areas of focus for this inquiry included: improving customer service performance, optimising digital services and plans for customer service workforce reduction. Taking on board feedback from our members, key points from techUK's response can be found below.

Improving Customer Service

First, techUK are aware of the work of HMRC to support businesses with their taxes through their services, including telephone calls and correspondence and would like to support HMRC as it moves towards digitising services.

However, as the NAO reported in their latest analysis, and reinforced by techUK members, HMRC’s services have been falling below expected service levels, resulting in added cost for businesses and HMRC. Efficiencies in the pipeline, for instance digitalisation of services, have also not yet been achieved. This includes enhancing HMRC’s mobile app and Making Tax Digital, at the heart of HMRC’s IT Strategy: 2022 to 2024, aiming to transform how digital technology can deliver value for HMRC. It is widely accepted that digitalisation is happening more slowly than planned, but downscaling of resources has not been revised to match, so there is a clear mismatch. Most advisers would prefer to interact with digital services as it is more efficient, but those services aren’t there or aren’t fit for purpose, so advisers rely on people, who also now aren’t there or aren’t fit for purpose.

Showcasing underperformance, the average adviser-answered call was 16 minutes and 24 seconds in the year to April 2023, compared to 12 minutes and 22 seconds the previous year – demonstrating a continued decline in services. Customer service performance must be improved given statistics that there are over 34 million individuals and over five million business taxpayers in the UK administered by HMRC.

Along with time lags, techUK members outline their experience with HMRC customer service over the past 12 months as being inconsistent. Often the HMRC representative answering telephone helplines does not have the training to resolve the issue being raised. This includes HMRC professional’s competency, level of support required for a claim. There seems to be significant 'pick up and put down' time lost as checks are passed between Officers, and often repeated points made. In addition, standards are declining, with incorrect advice being given.

A related issue appears to result from a lack of training and experience for many recently recruited officers, specifically for R&D claim compliance. There have been examples of inappropriate use of HMRC powers, such as correction under FA 1998, Sch 18 para 16 to remove R&D claims without proper review and consultation and an overly sceptical approach to compliance checks. Specifically on R&D tax credit claims, recent press articles emphasise ongoing challenges that taxpayers and their agents face in navigating enquiries by HMRC. Concerns have been raised about the appropriateness of the volume compliance approach to R&D inquiries, which has led to legitimate claims being rejected. A commitment to invest in training and improved processes for review and escalation would help to address these concerns and prevent genuine R&D businesses from being deterred from claiming relief altogether. We understand the challenges HMRC face in administering the volume of claims it receives each year, and we sympathise with concerns regarding abuse of the scheme.

A key point made was around lack of accountability to address issues, where Officers are rarely named, making it harder to follow up. Members outline a reluctance to engage directly (call or meeting) on substantive points, relying on extended correspondence which only lengthens the process. Along with a system that is continually failing to deliver a fair enquiry process for several genuine claims, there is a perceived bias among caseworkers towards rejecting claims and disregarding the testimony of competent professionals.

Currently, HMRC is failing to administer the R&D scheme effectively, instead leaving tech firms facing inconsistent and uncertain responses. To address this, HMRC must commit to providing the human capital and data to deal with the volume of cases, and meet cases where self-assessment comes into question, with clear guidance and reasoning for challenging and/or rejecting a claim. Given standards are currently not being met to deal with R&D tax credits from HMRC, techUK members advise that an external body should be set up to ‘certify’ R&D projects. For instance, the BFI for creative reliefs. In Australia, for instance, R&D projects must be pre-approved to attract relief. This is a very different approach and moves away from the self-assessment process operated in the UK.

Conversely, exploring a role for DSIT in supporting HMRC with compliance activity and producing relevant guidance could help HMRC to run enquiries more effectively while retaining the current self-assessment system.

As Start-Up Coalition outline in their report ‘Saving R&D Tax Credits’, HMRC must successfully administer the R&D tax credit scheme to support businesses, with “investors expecting HMRC to be able to identify genuine R&D, while running an open and accessible service that allows founders to forecast costs and plan projects”. techUK support the report’s recommendation around re-introducing specific expert teams for those sectors that have the highest number of R&D tax credit claims – where the R&D tax credit unit would be overhauled to improve quality and understand the complexity of submissions.

HMRC’s under delivery of basic services raises a fundamental risk to UK competitiveness, where investments are being delayed, halted, or missed, due to services not being met to support businesses. This is an issue of time, resource, and ultimately cost. Instead of supporting a government policy designed to promote growth, where the UK has a target to raise investment in R&D to 2.4% of UK GDP by 2027, is directly hindering firms' ability to operate successfully in the UK.

Optimising digital services

The tax system is increasingly digital in nature, and there is an opportunity for improved efficiency and customer experience. The trend is broadly welcome by techUK members. One member, for instance, outlined, they are keen to see HMRC use technology to improve efficiency and service levels. However, this should be done in a way that does not attempt to automate or adopt a 'bulk compliance' approach, for instance around the R&D tax relief. Additionally, the tax relief contains a subjective element relying on judgements from the company that cannot be made by digitalisation.

Alongside this, techUK emphasise that optimising digital services must be done in a way that does not reduce customer service standards, the current experience for many tech firms. There is growing concern among techUK members that the government is not leveraging the opportunity that digitalisation could bring. Indeed, digital transformation is enhancing productivity and improving customer experiences across various sectors and the public sector should be at the forefront of this shift. This has the potential to deliver significant benefits and increase efficiency to both HMRC and taxpayers. Process optimisation and automation, where necessary, are just a few opportunities for digital services of HMRC, e.g., online management of VAT Group members.

techUK members support plans to digitise the tax system and optimise services across HMRC. But digitisation must be done in the right way. Where government has taken the opportunity so far, it has increased the compliance burden. For instance, with quarterly reporting for MTD for income tax self-assessment.

HMRC must aim to simplify, rather than complicate, business process and ensure reasonable implementation periods for new systems. This includes embracing tax technology, data collection and publication. Alongside this, it is crucial for HMRC to consider its human and technological capital for data processing. Clearly communicating to taxpayers how their data will be used when expanding the scope or nature of data collection.

techUK makes the following recommendations to optimise digital services across HMRC:

Reduce the time burden of issues around data for HMRC and business by training HMRC staff on how to handle data, with data on taxpayers stored in a way that is clear and transparent.
Review the data collected on business taxpayers—including unincorporated, owner-managed, small, medium, and large enterprises, as well as domestic and international businesses—across all HMRC systems to create a comprehensive tax information database.

Plans for customer service workforce reduction

techUK members outline the need for improved resourcing to deal with the number of enquiries and delays, and an overall hesitancy of reducing the workforce. While HMRC outline customer experience committee priorities for 2023 to 2024 to reduce the volume of customer contract through correspondence and adviser-led phone channels by 30% by 2025, enabling more customers to resolve their issues online and quickly, online services are currently not meeting customer demands. The government should therefore be careful in its approach to reducing the workforce, while digesting services are being delayed/not meeting customer service standard.

HMRC must ensure that any customer service workforce reduction is met with improved services, and digitalisation is able to ‘plug’ this gap.

HMRC must recognise that digitalisation of process will also take time to get right, where mistakes may be made, and the resource must be in place to amend or support the correction of mistakes. Prioritisation of work for HMRC by re-introducing sector specific expert teams, along with improving data availability, could also support the workforce and enable HMRC to reduce certain teams. Ultimately, however, HMRC must ensure the human and data capital is there to support enquires, whilst simultaneously reduce the number of non-compliant enquiries.

Mia Haffety

Policy Manager - Digital Economy, techUK

Neil Ross

Associate Director, Policy, techUK

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