The government saw a 4.4% decline in tax revenues over the latest financial year as a result of the pandemic.
In its 2020-21 annual report, HMRC reported that it had collected £608.8bn in tax revenues, which is down from £636.7bn collected in 2019-20.
The tax authority generated £30.4bn additional tax through its work tackling avoidance, evasion, and other non-compliance, down 18% from £36.9bn in the previous year.
The yield was affected by the ‘unprecedented economic circumstances caused by Covid-19, and because pandemic restrictions meant HMRC had to reduce its compliance activity. The tax authority spent 59p for every £1 of tax collected.
The data showed that the revenues primarily consisted of income tax, national insurance contributions and VAT. The tax authority has estimated that the tax gap has increased to 5.3% up from 4.7% last year.
The debt balance that is currently owed to HMRC stands at £57.5bn which is significantly up from last year’s figure of £22.4bn. This is due to the deferrals of tax that it had offered during the pandemic. HMRC states that this is expected to reduce for the next financial year but will remain above the 2019-20 figure.
In its annual accounts, HMRC reported that there were more than 80 tax policy changes and clarifications to support customers and the economy during the Covid-19 pandemic and that it delivered £60.7bn in grants through the Coronavirus Job Retention Scheme (CJRS). It also reported that it paid out £7.2m in payments to the self-employed. The department also deferred 600,000 VAT payments for businesses over the last year.
HMRC’s current estimate of error and fraud in the Covid-19 support scheme payments is £5.8bn, of which £5.3bn relates to the furlough scheme. HMRC’s current estimate of the rates of error and fraud in each of the schemes is 8.7% for CJRS, 2.5% for the Self Employed Income Support Scheme (SEISS), and 8.5% for the Eat Out to Help Out scheme.
HMRC states that its estimates are subject to considerable uncertainty and the actual levels of error and fraud in the schemes could be significantly different.
Error and fraud resulted in overpayments of tax credits of £880m from 490,000 claims, a reduction of £220m compared to the previous year. Errors in 350,000 claims resulted in underpayments of £150m, a reduction of £20m compared with the previous year.
HMRC estimates that the level of error and fraud present in corporation tax research and development reliefs in 2020-21 is £336m, a rate of 3.6%, which is the same as the previous year. This represents an increase of £25m compared to the previous year.
From 2020 to 2021, HMRC’s total day-to-day running costs of £4,485m, its expectations were that its costs would be £4,580m which meant HMRC underspent by £95m.
HMRC states that the main reasons for the underspend were ‘lower levels of spend on UK transition activities’ at £41m including grants expenditure and IT systems, along with ‘lower than expected expenditure within our fiscal events and change portfolio’ at £44m which was a result of prioritising the department’s Covid-19 response and the wider impact of lockdown restrictions. Last year’s day-to-day cost was £4,290m.
In response to the Covid-19 pandemic, HMRC introduced a range of digital services to support taxpayers and businesses, it also increased its provision of webchats as a flexible alternative to phone calls and held 3.1m webchats with customers last year.
The tax authority stated that its main priority was ‘ensuring that taxpayers were supported throughout the pandemic’ by launching its Covid-19 support helpline in just five days at the start of the pandemic in March 2020.
HMRC reports that its Covid-19 webpage was accessed 100m times by the end of March 2021 and it held 462,000 Covid-19 webchats across all key areas of demand as an alternative to phone calls and ran 630 webinars on the Covid-19 pandemic.
To support its digital services, HMRC trained 1,000 new staff on webchat which increased the average number of webchats from 4,000 a day last year to a peak of 33,000 a day in April 2020. This figure dropped to around 6,000 chats a day in March 2021. Its digital services saw a customer satisfaction level of 85% which is the same level as last year.
Overall, HMRC’s helplines received 33.3m calls which are 8.3m less than the previous year, 2.5m were to the Covid-19 helplines, and 170,000 were calls to customs and international trade helplines.
In its report, HMRC stated that it did not set a target for its calls, but it did report that the average wait time doubled from 6.39 minutes in 2019-20 to 12.04 minutes in 2020-21.
HMRC stated that the decision to not set targets for wait times since it had moved 9,066 of its operators from other areas over to the Covid-19 helpline services, but the tax authority stated that the average wait times on these lines was ‘broadly in line with a normal year’ at 5.08 minutes.
In 2019-20, HRMC set the target of processing 95% of its online forms within seven days but only managed to process 87.6% in the timeframe. This year HMRC only managed to process 70.4% of its online forms but once again HMRC scrapped the target due to the high volumes of documents and the pandemic.
With the rise of digitalisation within tax reporting, 96% of self-assessment tax returns were filed online which is an increase from 94% filed the year before.
Customer satisfaction has increased across the board despite the pandemic with HMRC seeing 82% of small businesses reporting a positive experience up from 75% last year, mid-sized businesses reported 63% up from 58%, and large businesses reported 91% up from 86%. Tax agents reported a 10% increase in satisfaction going from 51% in 2019-20 to 61% in 2020-21.
Regarding the running costs of its digital services, HMRC’s expenditure on its IT services was £1.6bn with its IT and telecoms services expenditure being £884m, an increase from £633m in the previous financial year.
HMRC reported that it had now opened seven of its 13 new regional centres with four openings last year. HMRC also states that 85% of its staff and 50% of its senior roles are based outside of London,
The tax authority recruited 6,122 full-time staff in the last year which is up from 2019-20 where it recruited 5,946. From 2019 to 2020, 780 people were left under voluntary or compulsory exit schemes with HMRC forecasting that 2,839 people would leave under the same schemes, however, due to the offer of flexible and remote working HMRC only saw 490 leaves.
HMRC has laid out five strategic objectives going forward that it will focus its efforts around, this is to collect the right amount of tax and pay out the right financial support, to make it easy to get tax right and hard to break the rules, to maintain taxpayers consent through fair treatment and to protect society from harm.
It also wants to make HMRC a great place to work and to support wider government economic aims through a resilient and agile tax administration system.
In the next year, HMRC is to focus on upgrading its IT and data security systems, continue to work on its Making Tax Digital (MTD) plans by introducing new software products. It is also going to work and publish its plans to achieve carbon net-zero by 2040.