Corporate report

HMRC performance update: October to December 2022

Published 9 February 2023

Summary

• HMRC is your tax service – we want to support you to get your tax right and make it hard for the dishonest minority to cheat the system

• the vast majority of our customers pay their tax in full and on time, without having to phone or write to us. So far in 2022 to 2023, customer satisfaction with our phone, webchat and digital services has been at 80%

• more customers than ever are using our online services to manage their tax affairs, including our digital Time to Pay service for payment plans, which went live in November, and the HMRC App which had nearly 40 million logins between April and December 2022

• in the year to date, we haven’t met our customer service standards for dealing with phone calls and correspondence, although we have largely maintained or improved service levels compared with 2021 to 2022. We want to help more of our customers manage their tax affairs quickly and easily online – which is why we’re improving and expanding our digital services – so we can focus on supporting customers who are unable to use digital services or who need extra support

• we’ve also been supporting customers to make import declarations on the new Customs Declaration Service, which traders have been required to use since 1 October – a key part of the government’s plans to establish a world-leading, fully digitised border

• so far, this financial year, we’ve protected around £18.6 billion in tax yield through our compliance work – this is revenue that would otherwise have been lost to the Exchequer through error, fraud or non-compliance

• despite a strong operational performance in recovering tax debt since the pandemic, economic conditions mean we’re seeing more customers getting into tax debt

• we’re doing everything we can to help those who engage with us to get out of debt. Where customers don’t engage, we’re taking prompt enforcement action to collect the tax due

Delivering a trusted, modern tax and customs service

We want to ensure that the tax and customs administration fits with how taxpayers run their lives and businesses, keeping their compliance costs as low as possible and helping to create the right conditions for economic growth. This is vital to delivering our vision of a trusted, modern service.

The vast majority of our customers already pay their tax automatically (for example, through PAYE) or deal with their tax and payment affairs through our digital services, without needing to contact us directly.

We want to go further, making it easier for individual taxpayers and small businesses to get things right first time and find the support they need through new and improved online services.

An ever-increasing number of our customers are using the HMRC mobile App – with 39.4 million logins so far in 2022 to 2023 (up to end of December) – through which they can view their PAYE tax code and annual tax summary, pay their Self Assessment liabilities, manage details for tax credits and Child Benefit and use a tax calculator.

By the end of the financial year, we plan to give Child Benefit claimants the ability to view their claim details and proof of entitlement for Child Benefit online. We plan to follow that with the introduction of a new digital claim service later in 2023.

During 2023 we will be bringing together digital services under a consistent brand and provide an improved digital experience through a new account designed around taxpayer tasks and needs. We will add new digital features and services regularly to improve the customer experience, such as moving Child Benefit online, making it easier for customers to change their personal details and request their National Insurance Number online.

Using Making Tax Digital (MTD)-compatible software is now the norm for how our VAT customers file their tax returns. Nearly 2 million VAT-registered businesses are now keeping their VAT records and filing their returns in this way, and last year, more than 8 million VAT returns were successfully submitted through compatible software. Independent evidence shows that using MTD-compatible software is reducing avoidable errors in tax returns and making it quicker and easier for businesses to manage their tax affairs.

In December, the government announced that Income Tax Self Assessment customers will be mandated to submit tax returns using software from April 2026. We will work closely with self-employed individuals, business owners and landlords to ensure there are plenty of opportunities for them to get involved before it’s mandated, so they are ready to maximise the benefits of managing their business records and tax affairs digitally.

Since 1 October, we’ve also been supporting traders to make import declarations on the Customs Declaration Service (CDS) after 30 years of using the Customs Handling of Import and Export Freight (CHIEF) system. This change is a key part of the government’s plans to establish a world-leading, fully digitised border that will help UK businesses to trade and prosper. By mid-January 2023, over 23 million import declarations had been made on CDS with 98% of all import declarations now being completed through the service. We’re continuing work to migrate any remaining importers to CDS, while also focusing on making sure the UK’s exporters make the move to the new system by 30 November 2023.

Supporting customers to get tax right

For those customers who need direct support through services like phone or post, we’re committed to helping them get their tax, customs and payments right, and our Charter sets out the standards of service that customers can expect from us.

Since April 2022 we have improved the proportion of customer correspondence that we turn around within 15 working days from 45.5% across financial year 2021 to 2022 to 71.3% so far this financial year (to end of December 2022), bringing us much closer to the 80% service standard we want to achieve. Over the same time period to end of December, 74.9% of customers who wanted to speak to an adviser were able to do so, with an average waiting time of 14:51 minutes -– a slight decline in performance from 77.3% and 12:22 minutes across 2021 to 2022 and below our 85% service standard.

A number of factors have significantly affected our ability to meet customer demand for our services at times, including several instances of IT disruption and high demand from repayment agents, mostly related to working from home expenses and PPI claims (over 50% more than forecast levels). Some of the people normally working on our helplines were diverted to urgent priorities at certain points of the year, such as supporting Ukraine visa processing.

We’re working hard to bring all our customer service levels to where we want them to be, by implementing changes that will reduce demand on our phone and post services and enable us to improve the experience for those customers who still need to use them. Most importantly, we aim to increase the proportion of our customers self-serving online.

For context, the number of income tax customers in 2022 to 2023 has grown to 34 million from 31 million in 2015 to 2016 – while the number of higher rate taxpayers is expected to increase. This means more customers requiring active management in the tax system, and our telephony and post colleagues increasingly dealing with longer, more complex queries. But we know that in September 2022, around 1.5 million people phoned us for matters they could have handled online.

This is why we’re focused on helping more customers access our existing digital services and improving the range of digital services available. We’re also reducing the need for customers to contact us by simplifying customer journeys, improving guidance and removing the causes of unnecessary contact.

Our digital assistant automatically helps customers to find the information they are looking for in over 50% of cases and links the customer to an adviser through webchat if it can’t locate the answer. In January 2023, we started a trial of sending a direct website link by text to customers who phone us with simple, routine queries like finding out their reference number or resetting a password. Following positive feedback, we’ve also expanded access to our new online performance dashboard, so now all customers can use it to check current service levels and processing times.

Managing debt

The vast majority of our customers pay in full and on time. However, due to the challenging economic conditions, we’re seeing more customers getting into tax debt, and the average value of those debts is also increasing.

In 2021 to 2022, the value of new debt was over 50% higher than the average for the tax years from April 2017 to March 2020, and this trend has continued throughout 2022 to 2023. The vast majority of tax debt is owed by small and medium enterprises. There has been very little change in the proportion of customers filing their tax returns, but there has been a reduction in the number of customers paying on time, which suggests customers remain willing to comply but are unable to pay on time.

We have made strong progress in settling the debt that amassed during the pandemic, which peaked at £72 billion in August 2020, £40 billion of which related to the VAT and Self Assessment deferral schemes. We continue to pursue this debt and, by mid-November 2022, we’d already cleared £60 billion of the August 2020 debt stock. We are also making good progress on collection of the debts arising from the deferral schemes, with lower levels of losses than the OBR had forecast.

Despite a strong operational performance in clearing debt, the increased flow of new debts means we have seen a steady increase in the level of debt so far in this tax year; the December 2022 debt balance stood at £48.1 billion, up from £42 billion at the end of quarter 1. It is not possible to predict the level of the debt balance with confidence because of continuing uncertainty about the underlying UK economy.

Our new strategic approach to managing the debt balance continues our aim of supporting those who are unable to pay while ensuring that those who can pay do so.

In November 2022 we extended the existing Self-Serve Time to Pay (SSTTP) service, which already applies to Self Assessment customers, to employers with PAYE debt. We are also in the process of building a SSTTP service for VAT, planned to be launched in spring 2023. We’re communicating more with customers who have had a previous tax debt, improving signposting to budgeting tools, and introducing penalty and interest reform for VAT from January 2023, all of which should help to encourage more timely payment and the quicker resolution of debts.

Protecting tax and payments from error and fraud

We carry out compliance activity to ensure a level playing field for our customers and keep the UK’s tax gap low. We’ve maintained a long-term reduction in the UK’s tax gap from 7.5% in 2005 to 2006, to 5.1% in 2020 to 2021. The National Audit Office recognised, in a report published in December 2022, that our compliance work offers good value for money for the UK taxpayer, returning on average £18 for every £1 of expenditure.

We want everyone to pay the tax that is legally due, no matter who they are. Our role is to support people who are trying to get it right, encourage people to take proper care and stop the dishonest minority from cheating the system.

Our strategy is to prevent non-compliance before it happens through well designed policies, services and systems that make it harder to get things wrong. We promote good compliance by educating and supporting our customers in their tax affairs, while responding robustly to those who are carelessly or deliberately non-compliant, or who attack the tax system. In November 2023, this response work included dismantling one of the UK’s biggest ever illegal tobacco factories, which we estimate would have led to lost tax revenues of more than £130 million per year.

Every year, we collect and protect billions of pounds of tax revenue that would otherwise have been lost to the Exchequer through error, fraud or other forms of non-compliance. We call this ‘compliance yield’ and our activity to protect this money is a crucial part of ensuring everyone pays the right amount of tax.

So far, this financial year, our overall compliance yield is £18.6 billion, compared to £17.4 billion at the same point last financial year, indicating that we’re on course to protect more compliance yield in 2022 to 2023 than in either of the previous two years.

In 2021 to 2022 we recruited an additional 4,800 staff to help keep the tax gap down and received additional investment to offset the opportunity cost of deploying experienced compliance staff to tackle fraud and error in the Covid financial support schemes. While it takes time for new staff to become fully effective compliance officers, they will help us to maintain a stable tax gap over time.