HMRC like all large enterprises publishes an annual report and accounts. Read our review on what has been an eventful period.
HMRC is a public body however, similarly to all large enterprises, it publishes an annual report and accounts. Spanning over 300 pages, the document offers a cornucopia of information to digest even during the most uneventful of times – and we can all agree that the period 1 April 2020 to 31 March 2021 covered by the latest set of accounts has been anything but uneventful. From the ongoing initiatives around Making Tax Digital to novel challenges on the heels of the UK’s exit from EU, throw a global pandemic into the mix and the year has truly been one for the history books.
Perhaps never before has the importance of a nimble yet trusted tax administration system been so great in our lifetimes. It really is at the moment with rapidly evolving societal and macroeconomic landscapes – a need also recognised by HM Treasury and evidenced by its £200 million investment in supporting projects to execute on this vision, as revealed in the March 2021 Budget.
True to form, in the words of Chief Executive and First Permanent Secretary, Jim Harra, the Revenue “got on with business” during these exceptional times, responding to the unprecedented circumstances and demands imposed by the global pandemic – and doing much of it from kitchen tables and make-shift home offices (a tale all too familiar to most office-based workers these days).
HMRC was pivotal to the government’s response to the pandemic, with 11.5 million jobs supported through the Coronavirus Job Retention Scheme (through 31 March 2021), and a further 2.7 million individuals supported by the Self-Employment Income Support Scheme.
Naturally, the annual report also makes note of HMRC’s performance on its core purpose – namely, revenue collection for the purpose of funding public services – bringing in a total of £608.8 billion of tax revenues (lower than the £636.7 billion collected in the previous financial year, but an over-performance on initial forecasts at the start of the pandemic).
Unsurprisingly, HMRC’s debt balance increased as the COVID-19 pandemic progressed, with it holding circa £57.5 billion of debt at fiscal year-end, a whopping £35 billion increase on the prior year. Whilst a large chunk of the debt in question is attributable to the government’s choices to support the economy, tax avoidance is a contributor. To that end, compliance action remained at the forefront of the Revenue’s priorities even amidst the multipronged COVID-19 response, bringing with it a recruitment drive for compliance officers across all departments, as well as the redeployment of staff in the most critically affected areas. Compliance yield did reduce by £6.5 billion YoY, but it is sure to remain a focal point for the foreseeable future as HMRC continues to take measures in tackling tax evasion and avoidance schemes and promoters, and other forms of non-compliance.
These measures will invariably include continued scrutiny on the R&D space, particularly given the government’s ongoing efforts to maintain its current commitment of R&D investment targeted to equal £22 billion by 2026/27. If achieved, this will increase public investment in R&D from 0.7% of GDP to 1.1% by the end of this Parliament, compared to 1% in France and 0.7% in the USA. HMRC is also increasing its focus on the legitimacy of R&D Tax Relief claims, which will almost certainly continue to manifest in further compliance checks across all industries and sectors. In the report and accounts, HMRC highlighted the increased levels of ‘error and fraud’ in R&D claims observed during the year ending 31 March 2021. These are estimated at 3.6% of the total value of claims submitted – and as high as 5.5% of SME claimants – at a cost of c.£336m to the taxpayer. Businesses claiming R&D should also be aware that, as a direct reaction to the recent influx of fraudulent claims, HMRC recruited an additional 100 inspectors last November. These individuals were hired to focus exclusively on reviewing R&D claims, so it is more important than ever that businesses partner with a trusted and experienced adviser on their claim process.
Finally, you may wonder how much it actually costs to run this revenue collection and compliance machine which touches the lives of virtually every individual and business in the country. HMRC’s annual report and accounts reveals that the cost is just under 60p in the pound.
Insights from Elena Karadzhova, Head of Tax , Leyton UK
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