HMRC must urgently explain why some taxpayers have had no support during COVID says committee

The Public Accounts Committee have called for HMRC to publish a detailed explanation of why certain self-employed tax groups were excluded from support and also outline steps to overcome these obstacles, which has been welcomed by self-employment groups.

Since March 2020, HM Revenue & Customs (HMRC) has provided more than £80billion in support to businesses and individuals, including through the employment support schemes, to help as many people as possible as fast as possible.

Despite these efforts, quirks in the tax system have left whole groups of taxpayers without the financial support offered to others through the COVID-19 pandemic. Some of the workforce has "not had a penny" even though lockdowns and tier restrictions have meant, and continue to mean, that some cannot work at all. On the other-hand some large companies have taken taxpayer support whilst continuing to pay out dividends and high executive salaries.

The Committee says HMRC should, within six weeks of this report, publish an explanation of why it can't help those freelancers and other groups that have been excluded from receiving any support, and set out steps it can take to overcome those obstacles.

Meg Hillier MP, Chair of the Public Accounts Committee, said: "Obviously, the national system of revenue collection underpins all public spending and services. As public spending balloons to unprecedented levels in response to the pandemic, out-of-date tax systems are one of the barriers to getting help to a significant number of struggling taxpayers who should be entitled to support. And the system is going to struggle, and in many cases fail, to capture or deal with those wrongly claiming it.

“HMRC needs to redress the balance in its spending and use of tech, and get ahead on the basic financial and economic metrics that we need to adapt and respond to this pandemic in real time. There is also a huge question about how our customs and revenue technology at the borders is coping, and will cope in the months and years to come. There isn’t really any breathing space – HMRC’s out of date systems need to catch up fast."

IPSE has supported the Committee in calling for government to urgently overcome the obstacles to getting support to excluded self-employed. IPSE have also called for government to relieve pressure on the sector by delaying the changes to IR35 and committing to an overhaul of the outdated tax system to make it fair for the self-employed.

Andy Chamberlain, Director of Policy at IPSE (the Association of Independent Professionals and the Self-Employed), said: “The UK’s hopelessly outdated tax system played a key part in ensuring over 1.5 million self-employed people were excluded from support. Because of the many quirks of this system, government has claimed it is too complex or prone to the risk of fraud to help people such as sole directors of limited companies, PAYE contractors and the newly self-employed.

“However, HMRC has never clearly explained the obstacles to getting support to these groups, and we welcome the Public Accounts Committee’s calls for them to do so. We also believe it is absolutely right for the Committee to push HMRC to outline steps to overcome these obstacles and get support to the many self-employed who are still desperately struggling.

“We welcome, too, that the Committee has highlighted the inherent unfairness of the IR35 regulations, which are a poor patch-up of our outdated tax system. We are deeply concerned government is still pushing ahead with the very damaging changes to IR35 in April, when the self-employed sector will still be at its most fragile. We urge government to change course on IR35, plug the gaps in support and, in the longer-term, commit to a structural overhaul of the tax system to make it work for the self-employed.”