A recent hearing of the Treasury Committee saw HMRC officials questioned extensively on issues ranging from tax complexity to customer service standards and HMRC’s digital transformation plans. The intense scrutiny highlights public and political concerns about HMRC’s capacity to appropriately balance competing objectives as it modernises.

A key focus was HMRC’s move towards “digital by default” services and the impact this could have on taxpayers less able to use digital tools. MP concerns were raised about call wait times tripling when telephone services were reduced, potentially leaving vulnerable citizens unable to access needed help. HMRC Chief Executive Jim Harra defended the move as necessary to free up resources and claimed new digital offerings will provide greater access overall but committed to keeping wait times and digital adoption under review.

The hearing also dug into specific areas where HMRC is perceived to be making tax compliance over-complex or creating unintended consequences. An example raised was a new requirement for platforms like eBay to report individuals doing over 30 transactions annually – even if the income is non-taxable. HMRC argued this provides data to identify true tax avoidance, but acknowledged the need to adjust reporting thresholds if unintended taxpayers get caught up.

Perhaps the sharpest scrutiny focused on HMRC’s administration of R&D tax credits to support innovation. MPs questioned whether HMRC’s ramped up compliance efforts have gone too far, denying valid claims and deterring investment. The session exposed complaints that HMRC lacks expertise to appropriately evaluate pioneering R&D projects across diverse sectors like technology and life sciences. Delayed payouts and clawbacks of previously awarded credits were cited as damaging startups on the cutting edge. Some companies reported reconsidering plans to create UK jobs and growth due to perceived hostility to their claims. As MP John Baron questioned:

“Nine bosses told the FT that the UK tax agency’s administration of the flagship schemes left them exploring moving overseas or scrapping plans to create jobs or invest, while two more said it had stunted their companies’ growth.”

Baron further relayed the story of Matthew Millar, co-founder of Really Clever, who said he was considering moving operations abroad after being asked to repay £44,000 in relief despite disputing HMRC’s decision.

Jim Harra defended the approach as necessary to combat high estimated error and fraud rates in R&D tax credit claims:

“There is a balancing act to be achieved between making sure that R&D credits achieve their policy objectives of promoting innovation and business investment in R&D—which is absolutely what my Department is there to ensure that they do—while at the same time protecting the Exchequer from error and fraud.”

John Baron pressed HMRC Chief Executive Jim Harra on whether enough is being done to ensure adequate expertise:

“I would have been slightly more heartened – comforted even – if I had heard from you that you recognised the issue and were putting more resource into sorting it, unless you are saying it is not an issue and that these are a small minority of cases.”

However, Jim Harra sidestepped this question, and responded instead about HMRC meeting claim processing timescales:

In terms of resources, there is no backlog of R&D claims. We have a service standard to process them within 40 days and we either pay them at that point or notify the claimant that we have concerns and that we want to carry out checks, and we are meeting that service standard.”

HMRC Chief Executive Jim Harra acknowledged that HMRC needs to improve its internal expertise and expand external advisory support in order to better assess eligibility of R&D tax relief claims. However, in its exchanges with MPs, HMRC appeared reluctant to openly admit to deficiencies in the current skills and knowledge of its staff when it comes to evaluating complex R&D claims. 

Overall, the intense questioning indicates MPs are monitoring HMRC’s modernisation push closely, wanting assurances that citizen needs remain centred. As HMRC pointed out, balancing competing demands around service quality, simplicity, enforcement, and revenue collection is incredibly complex. This scrutiny will hopefully lead to positive reforms that keep HMRC accountable and customer-focused, while recognising the scale of their transformation challenge.