HM Revenue & Customs is equipped to administer government schemes to help coronavirus-hit workers while continuing to combat tax avoidance and evasion, the agency’s chief told the U.K. Treasury Committee.
The committee held a virtual hearing April 8 on HMRC’s handling of the economic impact of the coronavirus – especially whether its resources and systems have the capacity to cope with increased claims under new schemes such as the coronavirus job retention scheme (CJRS) and the self-employment income support scheme (SEISS).
Jim Harra, HMRC’s chief executive and first permanent secretary, told the committee that in response to the coronavirus crisis, the agency “had to set up schemes very rapidly, and time has been the enemy of perfection” in designing and implementing them.
Harra admitted that HMRC will be busy administering the schemes in the months ahead, but he said the agency will continue its work on tackling tax evasion and avoidance while "exercising common sense." “We will continue to keep those services going, but we’re not going to add to the burden of small businesses already fighting for survival,” he said.
Harra said that between March 11 and April 1, £3.8 billion of tax was deferred through businesses' and individuals' use of the Time to Pay scheme, which has seen a 90 percent compliance rate. Self-employed people who did not qualify for SEISS will be able to seek help through Time to Pay and deferral of VAT and self-assessment payments, he said. Harra estimated that £30 billion in VAT will be deferred, and that self-assessment payment deferral will amount to nearly £13 billion for income tax payers. He confirmed that no late penalties or interest will be due on these deferred tax payments.
Self-Employment Income Support Scheme
With over 5 million self-employed people in the United Kingdom, Harra told the committee, SEISS “should benefit 3.8 million self-employed people” who earn more than half their income from self-employment, but he noted that because the scheme is optional, not every self-employed person who qualifies will apply for it. HMRC expects to have contacted all 3.8 million eligible people by mid-May, he said, adding that HMRC is on track to deliver payments by early June.
The amount granted under the scheme would be calculated by HMRC based on the last three tax returns, Harra said. This should limit abuse because HMRC, not the taxpayer, will calculate how much can be claimed, and the grant will count as taxable income. Harra acknowledged that a household dependent on a single earner who makes over £50,000 would lose out compared with a household with two self-employed people with earnings below that threshold, but said that a scheme to assist such households would take years to design and implement.
Cerys McDonald, HMRC’s COVID-19 policy coordination director, added that the agency estimated that 95 percent of self-employed people qualify for SEISS, which was designed “to help those in greatest need.”
When questioned about self-employed people paying their wages as dividends via a personal service company, Harra confirmed that they would not be entitled to SEISS, but that as owner-managed businesses they might qualify for the CJRS by furloughing on their wages as employees of their own companies. “From our perspective, we have no way of identifying [from a tax return] whether dividends were received in lieu of wages or which came from capital investments,” he said.
Coronavirus Job Retention Scheme
Harra told the committee that a furloughed employee could undertake training or volunteer, or even work for another organization, and still qualify for the CJRS, but he could not do any remunerative work for an employer that had furloughed him. Also, employees whose hours and pay were reduced, rather than being furloughed, would not qualify for the scheme. He said HMRC estimates that out of around 30 million Pay As You Earn (PAYE) employees, around 10 percent will be furloughed. However, the Resolution Foundation think tank estimates that around a third of private sector workers (7 million to 11 million employees) would be furloughed, costing the U.K. government £30 billion to £40 billion over three months.
Harra said there are no plans at this time for the CJRS to help those who signed new employment contracts after the cutoff date of February 28 and found that their new employers couldn’t employ or furlough them. “The JRS is only one scheme, and hopefully people can get help from other schemes,” he said.
The basic IT system for the CJRS is in place, Harra confirmed. He said HMRC has tested the system to handle up to 450,000 claims an hour and “scaled the IT to cope with one claim per Pay As You Earn scheme.” Once the system is usable, he said, HMRC will produce guidance for employers on how to upload claims for the employees they have furloughed.
HMRC will open the system for everyone on April 20 for payments to be made April 30, and the online systems will be available 24/7, Harra said. “The biggest challenge is to enable the maximum number of employers to self-serve and not contact HMRC for help,” he said, adding that he expects to pull colleagues off other services in the third week of April.
HMRC representatives assured the committee that it has four defenses in place to combat fraud related to the CJRS: First, the cutoff date of February 28 means that an employee would have to have been on a company’s payroll at that date; second, the design of the scheme requires online authentication, and a company’s PAYE status would be verified within the existing system; third, employees could report employers abusing the furlough scheme to HMRC – with the possibility the employer could face criminal action; and fourth, HMRC will have the ability to carry out checks in the future, even after the money has been paid out, although reporting an employer’s fraudulent claim would mean the employees would lose the money paid to them.
Staffing Challenges
Harra admitted that HMRC has been “profoundly affected” by the changes wrought by COVID-19, with over 80 percent of staff now working from home, as opposed to 18 percent before. Social distancing and protective measures are in place for the staff who still need to go to the office, Harra said. Other projects have been delayed so that HMRC can get the coronavirus-related schemes set up, and it is not yet known how long the schemes will run.
Harra praised HMRC staff, noting the 0.7 percent rate of absenteeism for sickness despite COVID-19, but he cautioned against expecting the agency to do the impossible all the time in future. “I think this experience has shown that HMRC can do things we didn’t think we could do,” he said, “but I fear that after this, ministers will expect HMRC to do everything in one month.”
After the hearing with HMRC, Treasury Committee Chair Mel Stride wrote to Chancellor of the Exchequer Rishi Sunak, urging him to set out what he would do to help those who aren't eligible for the Treasury’s support measures. He also published an additional summary of responses the committee received between March 27 and April 2.
“Some people appear to have been left behind,” Stride said in a statement. “Whether it’s those who started a job after February 28 and who therefore have real difficulty qualifying for the Job Retention Scheme, those who draw down some of their income through dividends, or the time it will take for payments to reach individuals and businesses, it’s clear that urgent action is needed. Significant progress has been made and millions of people will be helped by the government’s schemes, but some people have slipped through the net.”