Abrupt change at HMRC

As HMRC seeks to embrace the efficiencies offered by digitalisation, at the same time streamlining services and securing cost savings, accountants, agents, and businesses are entering a period of increased turbulence with the government department. With less than three days’ notice to taxpayers, HMRC closed the VAT registration helpline on 22 May, leaving many in limbo with their VAT tax queries.

Hot on the heels of this closure, HMRC announced the immediate trial of a new “seasonal” model for their Self-Assessment (SA) tax helpline, closing the public helpline from mid-June for three months and instead directing queries to their digital tools. They again gave taxpayers limited recourse, with just two working days’ notice for this change. Mitigating at least some of the whiplash felt by businesses left reeling, HMRC did in fact reopen its Agent Dedicated Line (ADL) on 5 June, leading many to conclude that the department simply cannot resource multiple lines at the same time, and are instead branding shortfalls as “trials” to improve efficiencies.  

An independent assessment by the National Audit Office, meanwhile, has identified challenges with the roll out of Making Tax Digital (MTD) for self-assessment, including unrealistic timelines from HMRC, budget overspend, a lack of troubleshooting for key scenarios, and a lack of cost-benefit analysis for the taxpayer. This is putting HMRC under increased scrutiny, while accountancy practices grapple with this uncertainty. 

We’ve asked the Institute of Financial Accountants for their take on the issues.

Helpline closures

Matt Barton, Technical Manager for the Institute of Financial Accountants comments, “The reopening of the ADL is welcomed by many accountancy practices as a means to secure advice on behalf of clients. It will support queries for both VAT and SA, particularly for complex cases, but serious concerns remain regarding HMRC response times and service quality. Furthermore, businesses without an appointed agent will struggle, and accountancy practitioners will be unable to secure advice for clients if they are not yet officially appointed as an agent, limiting the overall value of the reopening.”

Matt continues, “For businesses, the lack of access to HMRC arising from the closure of the VAT registration helpline, and the trial suspension of the self-assessment helpline, will only serve to increase pressure as deadlines loom, particularly for those with SA payment due on 31 July. The result could mean businesses submitting incorrect returns, failing to submit on time due to lack of response to complex queries, or holding off making queries until September when the helpline reopens, furthering the resource challenges that HMRC are already experiencing.”

Having announced the planned SA helpline suspension on 8 June 2023, with a start date of 12 June 2023, and billing the move as a “seasonal trial” it is feared that the pilot could become the long-term default for the previously manned telephone line. Instead, businesses will be directed back to digital tools they may have already accessed to no avail, leaving experts wondering how HMRC will measure the “success” of the trial, and whether it will leave taxpayers in limbo and unable to secure much-needed advice for complex cases. For accountants, this may mean increased pressure, acting more frequently on behalf of businesses, thanks to their access to the ADL.

Jim Harra, HMRC Chief Executive and First Permanent Secretary, wrote to the Public Accounts Committee on 12 May, stating plainly that “Our existing resource levels will not enable us to handle current forecast demand – which is set to increase significantly – for our phone and post services.” This leads directly to concerns that without additional resource, the helplines and overall service will continue to deteriorate and suffer further damage. This further begs the question: how will HMRC be able to deliver against its Charter in the future, given that it is unlikely they will be able to overcome their resource shortfall?

Matt concludes, “Our advice to accountants is to be prepared. Ensure clients are assigning you as an agent, if they haven’t already, enabling you to submit complex queries via the ADL. Accountants should also look to extend their internal deadlines, encouraging clients to prepare documents earlier for submission, in case of queries arising and the need to seek advice from HMRC amid their delayed responses.” 

The National Audit Office Report

The National Audit Office (NAO) has produced a “value for money” report pertaining to the Making Tax Digital project, with particular focus on the looming self-assessment update. The report concludes that the original 2020 deadline for ITSA and Corporation Tax was unrealistic, with timeframes agreed before delivery options were explored. HMRC’s need to replace its own legacy systems, at the same time as digitising the tax system, has only compounded the problem. 

The report also highlighted overspend in several areas of the roll-out; difficulty identifying the return on investment for the overall project, with a lack of clarity around the effect of digitisation and the impact of increased controls; and a lack of clarity for many complex cases, including changes in taxpayer circumstances. Jim Harra, HMRC Chief Executive and First Permanent Secretary welcomed the report and scrutiny, acknowledging the challenges faced, but cautioning a need to conclude the project to determine the full value, arguing that the benefit will come long-term thanks to a simplification of the way we pay tax. 

Matt Barton comments, “The NAO’s recommendation that HMRC develop a more robust business case is one that the IFA agrees with. Increased collaboration with professional bodies and other relevant stakeholders, where the IFA will continue to be involved and ensure small business and small practice voices are heard, will be essential to getting MTD for ITSA back on track. Whether HMRC have the resources to dedicate to the systematic review of the MTD project the NAO recommend is another question entirely.”

Matt concludes, “For accountants and businesses alike, this report in some part fuels more uncertainty, as it becomes clear that the current plan is not fit for purpose, creating risk that the process, timelines and requirements may change again. Our advice is to continue as planned, taking advantage of the benefits of digitisation, regardless of Making Tax Digital, and aligning clients with the goals and timelines set out in MTD. That way, regardless of HMRC’s approach, and any future changes, businesses will already be reaping the rewards of digitised systems and real-time business data, while being better prepared for adopting Making Tax Digital changes, however they end up. It’s about viewing the benefits and efficiencies offered by upgrading systems, with or without the added value of MTD compliance.”