HMRC and Concentrix agree to end tax credits contract as watchdog investigates

HM Revenue & Customs and Concentrix have agreed to end their controversial tax credits contract with immediate effect, two months after a loss of confidence in Concentrix’s performance led HMRC to announce that it would not extend the contract beyond May 2017.

“Following further discussions since [the September] announcement and having evaluated all options available, we have agreed that it would be in both parties’ interests and those of tax credit customers to end the contract early,” HMRC said in a November 11 statement …

… The National Audit Office has announced a “factual investigation”, which is expected to report to Parliament early next year, into Concentrix’s performance. It will also examine HMRC’s management of the contract and the department’s decision not to extend it.

The National Audit Office “has turned up and is undoubtedly going to do a thorough piece of work”, HMRC chief executive Jon Thompson told the Commons Treasury Committee on October 27.

Read more: My news story for Tax Analysts, 12 November (paywall).


Update 14 November: The CIOT’s Low Incomes Tax Reform Group is calling for an urgent review of the tax credits compliance process.


 

‘Loss of confidence’ in Concentrix led to tax credits decision, HMRC chief executive says

A loss of confidence in the performance of Concentrix led to the decision not to extend its contract, Jon Thompson, HMRC chief executive and permanent secretary, told the House of Commons Work and Pensions Committee. Thompson spoke during an evidence session on October 13, two days after the Public Accounts Committee (PAC) opened an inquiry into HMRC’s performance. The PAC has invited submission of written evidence by midday on October 18.

HMRC engaged Concentrix’s Belfast office to check entitlement to tax credits. In the middle of August, Concentrix’s performance in answering the telephone was “dramatically reduced,” with fewer than 10 percent of calls being answered, and the amount of time taken to get through to staff rose to more than 30 minutes, Thompson said. Philip Cassidy, Concentrix’s senior vice president, told the committee that the company apologised to four tax credits claimants who spoke earlier in the evidence session and to “all the other [claimants] that were impacted.”

Read more: My news story for Tax Analysts October 14 (paywall).

Making Tax Digital: Understanding the costs and benefits for taxpayers

A National Audit Office report has identified two areas of risk in HMRC’s stated aim to have “one of the most digitally advanced tax administrations in the world”. These are optimism bias in the department’s key assumptions, and the need to understand the costs and benefits of the proposed “transformation” for taxpayers.

The NAO said: “Most business customers will be required to update HMRC quarterly rather than annually about their tax affairs, and some may need to purchase new software that works with the new systems … Some businesses are sceptical of HMRC’s evaluations of the costs and benefits of previous changes to the tax system. HMRC plans to develop a fuller picture of what it will cost taxpayers and businesses to use the new systems over the next year.” Continue reading

Childcare support – an update

This note on the importance of clear guidance on the interaction between tax-free childcare and other means of support is extracted from my recent update for Tax Adviser:

“The new childcare support landscape will be complex and we have stressed the importance of providing users with guidance that not only explains the rules of each scheme but also gives enough information for users to choose between schemes. Research published by HMRC has found ‘very strong support’ for an online calculator. However, parents – particularly those in two-parent households – often assumed they would be ineligible for [tax-free childcare]. This suggests that HMRC faces a challenge in raising awareness among parents.”

The Low Incomes Tax Reform Group provides regular technical updates for the magazine. Read more on the Tax Adviser website.

What is the ‘level’ of child tax credit?

A Labour peer took issue last week with a statement that under the government’s proposed cuts to tax credits from April 2016, “a family with children who are in receipt of child tax credits would receive those tax credits elements at the same rate of payment as currently applies in respect of those children”.

Lord McKenzie suggested this was not a “true and fair view”, and added: “What is paid in terms of tax credits reflects not only the various elements – the building blocks – but the net effect of applying the income threshold and the taper. The former has been dramatically lowered and the taper accelerated.”

Responding, Lord Ashton said Lord McKenzie was referring to “a television programme with David Dimbleby”.

(This was the BBC Question Time Election Leaders Special in which Dimbleby asked David Cameron about “child benefit”, “child credit” and “tax credits”. Full Fact examined in July that interview and others, and whether there was a pre-election pledge not to cut child tax credit.)

Back to last week’s short debate. Lord Ashton added: “The award has not changed. It is £2,780 and it was before.”

And at PMQs two weeks ago the prime minister said: “What I said at the election was that the basic level of child tax credits would stay the same, and, at £2,780 per child, it has stayed exactly the same.”

Regulations fix the “maximum rate” of child tax credit. This maximum rate includes an individual element for each child, which is normally £2,780. But the rules fixing the actual rate of child tax credit apply (with some exceptions) a deduction based on the claimant’s income (joint income in the case of a couple). For this purpose an income threshold and the rate of taper are also set out in regulations.

The amending regulations rejected by the Lords last month would have reduced the income threshold, and increased the rate of taper, from April 2016. The impact of those changes would have been to hit some claimants and their families hard, as illustrated by the Institute for Fiscal Studies, the Resolution Foundation and others including the CIOT’s Low Incomes Tax Reform Group. (I work for LITRG and have contributed to recent briefings including this one for MPs on the tax credits reforms.)

The table below illustrates how Ben, in LITRG’s example 1, would have seen his tax credits award reduced by £42 a week under the summer budget proposals . Ben is married with one child. He works full time and he and his wife have a joint income of £20,000.

Ben 2015/16 2016/17
Working tax credit £ £
Basic 1,960 1,960
Couple 2,010 2,010
30 hours 810 810
Child tax credit
Family 545 545
Child 2,780 2,780
Maximum elements 8,105 8,105
Income 20,000 20,000
Threshold 6,420 3,850
Excess 13,580 16,150
Taper rate 41% 48%
Taper amount 5,568 7,752
Tax credit award 2,537 353
Reduction 2,184

Clearly, the £2,780 figure is only part of the story.

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Softening the impact of tax credit cuts

There is a “growing expectation” that the chancellor will announce measures to soften the impact of the April 2016 tax credits cuts in his autumn statement next month, according to a Guardian report which has been cited in The Times.

I hope we will see a softening of the blow. Many tax credits claimants will not benefit from the increase in the income tax personal allowance, the national living wage, or the planned increase in provision of free childcare, which ministers insist should be considered as part of a package of welfare reform.

Unfortunately, the autumn statement will not happen until 25 November and it will be a huge task for HMRC to tell claimants precisely how their provisional awards of tax credits for 2016/17 will be affected.

As the House of Lords prepares to debate on Monday three motions to “decline to approve” or “decline to consider” the April 2016 cuts, there’s a useful account of last week’s developments in today’s The Week in Westminster on BBC Radio 4.

The two-child limit set to apply from April 2017 is in the Welfare Reform and Work Bill, which MPs will debate again on Tuesday.