26. HM Revenue & Customs (HMRC) is a department under pressure, and, in some areas, the cracks are showing. It has a long-standing problem with error and fraud in Tax Credits, with an estimated £1.3 billion lost in overpayments in 2016-17 alone.29 HMRC has a responsibility to UK taxpayers to make sure that taxes and tax reliefs are properly managed. We are frustrated that HMRC expects the rate of Tax Credit overpayment to increase; de-prioritising action because Tax Credits are being replaced by Universal Credit.30 It is also not doing enough to improve the administration of Pay As You Earn by some employers and pension providers. This is unacceptable, because poor administration leads to errors in tax collection, causing problems for taxpayers and errors in Tax Credits and Universal Credit.31
27. HMRC's handling of online VAT fraud is a subject we follow closely. Too many overseas traders using online marketplaces such as Amazon and eBay are not charging VAT as they should when selling in the UK, which is hitting UK businesses hard.32 Although we found that HMRC has taken steps to begin tackling the problem, its slowness to respond and the size of the task at hand, is concerning.33
28. HMRC has a critical role in preparing for the UK's exit from the EU; it is responsible for managing the risks to customs and borders. HMRC needs to take steps to protect UK businesses, so they are not negatively impacted by the UK's exit from the EU. We were frustrated and disappointed by HMRC's lack of communication with businesses which may need to start making customs declarations in the event of a no-deal Brexit. We were concerned at HMRC's lack of plans to protect UK businesses in the event of a no-deal Brexit and its failure to communicate and engage with business about potential changes in customs rules and procedures Its engagement with software developers to make the necessary system changes only happened very late in the day.34
29. We were also disappointed that HMRC's progress replacing its ageing customs system, used to process customs declarations, has been beset by delays. This is despite HMRC's repeated assurances.35 In the lead up to the UK's original date to leave the EU HMRC instead focused on scaling up its existing customs system to ensure it could deal with the increased volume of activity it would need to process.36 While this was a reasonable approach there had been earlier optimism that the new system would be ready in time for the original Brexit date of 29 March.
___________________________________________
29 HMRC, Annual Report and Accounts 2017-18, 12 July 2018, p 160 and para 3.5, p 270 (Report by the Comptroller and Auditor General)
30 Committee of Public Accounts, HMRC's performance 2017-18, Sixty-Sixth Report of Session 2017-19, HC 1526, 24 October 2018, summary, p 3
31 Ibid, conclusion 4, p 6
32 Committee of Public Accounts, Progress in tackling online VAT fraud, Forty-Ninth Report of Session 2017-19, HC 1304, 29 June 2018, summary, p 4
33 Ibid, p 3 and 4
34 Meg Hillier, The Customs Declaration Service, Letter to the HMRC Chief Executive and Permanent Secretary, 2 October 2018
35 Ibid.
36 Committee of Public Accounts, Oral evidence: HMRC Progress Review, HC 1969, 4 March 2019, Qq 118, 119, 125