Dealing with Brexit could have “potentially catastrophic consequences” for customs authorities attempting to cope with major welfare reforms and tax avoidance, MPs have warned.
The influential Public Accounts Committee said attempts to modernise HM Revenue and Customs (HMRC) were already a “precarious high-wire act” that was “being battered by the winds of Brexit”, as the taxman could see its workload soar by 15 per cent due to projects linked to the EU withdrawal.
In a wide-ranging report, the PAC said the overhaul – involving the closure of offices, moving staff to 13 regional centres and digitalisation of tax returns – was “not deliverable” as originally planned due to soaring pressures.
Vulnerable welfare claimants could be pushed into poverty while waiting to transfer to universal credit – the Government’s flagship welfare reform – due to waits or overpayments, the committee said.
MPs also cast doubt on HMRC’s ability to probe tax avoidance and evasion, as its workload could “significantly increase” if it gets hold of the so-called “Paradise Papers”, which detail the extent of global tax avoidance in offshore havens.
The committee said it was “far from confident” that HMRC has sufficient resources to deal with the full scale of the leak, as a similar cache of leaked documents known as the “Panama Papers” has already led to 66 criminal or civil investigations since its publication in 2016.
Labour committee chairwoman Meg Hillier said: “HMRC’s transformation programme would have been less risky had it not attempted to do everything at the same time.
“What was already a precarious high-wire act is now being battered by the winds of Brexit, with potentially catastrophic consequences.
“Action arising from allegations in the so-called Paradise Papers could also significantly increase the authority’s workload.
“HMRC accepts something has to give and it now faces difficult decisions on how best to use its limited resources – decisions that must give full consideration to the needs of all taxpayers.”
Customer service has improved from “appalling levels of recent years” but MPs were concerned that helpline waiting times could be on the rise.
Ms Hillier said: “There are concerns too about the impact of changes in the welfare system, which could increase the financial risks faced by vulnerable Tax Credits claimants. At the same time, the level of Tax Credits fraud and error has gone up and is only going to get worse.
“These are serious, pressing challenges for HMRC, requiring swift and coordinated action in Government. As a matter of urgency the authority must set out a coherent plan and demonstrate it is fit for the future.”
The committee reported HMRC’s own assessment that it is “not credible” to continue with its transformation programme, as the agency estimates it will miss its 2020 savings target of £717m by £10m.
It gave HMRC a deadline of April to set out how it will respond to growing pressures.
An HMRC spokesman said: “We are fully focused on making the UK’s exit from the EU a success. The Customs Declaration Service (CDS) is on track for delivery by January 2019 and has the capacity to deal with a significant increase in customs declarations at the border.
“Following the Paradise Papers data leak, HMRC continues to look very closely at the information disclosed in the public domain to see if it reveals anything new that could add to existing leads and investigations.
“Since 2010, HMRC has secured an extra £160bn by tackling tax avoidance, evasion and non-compliance, including £2.8bn from customers who tried to hide money abroad to avoid paying what they owe.
“The autumn Budget also introduced new measures to further bear down on offshore evasion and avoidance. These include a requirement notification of offshore structures, and extending the number of years of back tax that HMRC can assess.”