Accountants call for ‘immediate and drastic change’ at HMRC after election

Accountants call for ‘immediate and drastic change’ at HMRC after election

Jul 8, 2024

As Labour takes power, the priority for the accountancy profession is urgent investment in HMRC to improve service standards with a plan of action within 100 days

Top of the agenda is action to address the unacceptable deterioration in service standards at HMRC with confidence in the service has fallen to an all-time low.

The Labour Party wants to see more action on tackling tax avoidance but has not allocated specific funds for HMRC to increase staff numbers. Despite this it expects HMRC to recover £6bn in unpaid tax to fund public services. This could be a challenge with the tax gap remaining stubbornly high at £39.8bn for 2022-23, up 5% on the previous year, driven by tax avoidance, errors and compliance issues by small businesses.

Fiona Fernie, partner, private client at Blick Rothenberg said: ‘Labour party has pledged to improve public services largely based on funds raised by “closing the tax gap”.

‘However, for many years the percentage fall in the tax gap has largely been the result of the increase in the taxpaying population rather than efficiencies in increasing collection.

‘In fact, in monetary terms the tax gap has increased by approximately four billion in the latest HMRC annual report. If HMRC have not managed to close the tax gap to date, I am not sure, short of a huge overhaul in approach together with a significant increase in resource, what difference a change in Government will make. And without funding where does that leave Labours plans for ‘fixing’ our public services?’

Glenn Collins, head of technical engagement at ACCA said: ‘ACCA advocates for immediate and drastic change at HMRC, with taxpayers and their agents enduring unacceptably low service standards.

‘We call for action to restore trust between HMRC, taxpayers and agents by implementing a programme of improvements, including additional resources and training for staff.

‘We would welcome any clarity from the incoming government on how it will address these concerns within the first three months in office.’

Recent National Audit Office figures showed that taxpayers had waited 798 years on hold in the 2022/23 tax year, with an average wait of 23 minutes, deepening the lack of faith taxpayers and businesses have in the service.

Andrew Snowdon, chairman of UHY Hacker Young said: ‘The HMRC customer service crisis is going to need proper investment to fix and both the two main parties have overlooked that in their manifestos.

‘Whilst the Labour Party talk about investing in HMRC that investment is focused on collecting more tax through tax investigations and not fixing the customer care crisis.

‘There is a concern that too high a percentage of HMRC customer care focus staff are working at home, rather than in an open plan office. That means that they are not easily able to ask help from colleagues when dealing with a query – leading to high level of queries left unresolved.’

When Rachel Reeves, MP for Leeds West, becomes the first woman Chancellor in history, she will have a full in-tray.

Her first Budget isn’t expected until at least September, but some are calling for immediate action regarding taxes.

MHA’s economic advisor, Joe Nellis has called for ‘an immediate cut in corporation tax by one or two per cent’ and reversing the freeze on income tax thresholds which are set to stay put until 2028.

However, Reeves has ruled out any changes to income tax, while only stating that corporation tax will be capped at 25%.

Adrian Young, tax partner at Hurst said: ‘Tax was front and centre of the election build-up, and it formed a key plank of the Conservatives’ attack on Labour.

Labour for their part held up a mirror to Tory accusations by reminding the public that taxes were at a 70-year high after 14 years of Conservative government.

‘But now that we know who will be calling the shots, we can start to look more closely at how new Chancellor Rachel Reeves will approach the job, and what this will mean for taxpayers,’ said Young.

‘Having spoken at length to local business leaders, it is clear that stability is the most valued attribute Reeves can bring. The economy has faced fiscal turmoil over the last few years, not least with rising tax burdens and Liz Truss’s ill-fated but short-lived experiment.’

As well as the tax implications of the change in power, the long delay to audit reform will be at the forefront for many.

Bruce Cartwright, CEO of the Institute of Chartered Accountants Scotland (ICAS) said: ‘We hope the new Labour government will quickly bring forward the long-delayed audit and corporate governance reforms that will help restore trust in business and protect livelihoods.

‘Labour’s sustainability commitments need to prioritise bringing forward legally enforced reporting standards, re-positioning the UK as leaders in sustainability and net-zero goals.

‘Lastly, we urge collaboration to improve financial regulation, ensuring it is fair, proportionate, and enhances our global reputation as a business-friendly environment.’