HMRC Main Estimate 2019-20 - Select Committee Memorandum - HMRC Main Estimate 2019-20 - Parliament UK

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HMRC Main Estimate 2019-20

                 HMRC Main Estimate
                             2019-20

                 Select Committee Memorandum

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HMRC Main Estimate 2019-20

   1 Overview

        1.1   We are the UK’s tax, payments and customs authority, and we have a vital purpose: we
              collect the money that pays for the UK’s public services and help families and individuals
              with targeted financial support. We do this by being impartial and increasingly effective
              and efficient in our administration. We help the honest majority to get their tax right
              and make it hard for the dishonest minority to cheat the system.

        1.2   Our key objectives set out in our Single Departmental Plan are to:
              • maximise revenues due and bear down on avoidance and evasion
              • transform tax and payments for our customers
              • design and deliver a professional, efficient and engaged organisation.

        1.3   The Valuation Office Agency (VOA) gives government the valuations and property advice
              needed to support taxation and benefits. VOA is an executive agency of HM Revenue
              and Customs (HMRC).

        1.4   The purpose of this Memorandum is to provide the Select Committee with an
              explanation of how the resources and cash sought in this Supplementary Estimate will
              be applied to achieve HMRC’s objectives.

   2 Spending controls

        2.1   HMRC’s spending is broken down into a several different spending totals, for which
              Parliament’s approval is sought.

        2.2   The key spending control totals for HMRC which Parliament votes are:

              •   Resource Departmental Expenditure Limit (“Resource DEL”)- day to day running
                  costs
              •   Capital Departmental Expenditure Limit (“Capital DEL”)- investment in infrastructure
              •   Resource Annually Managed Expenditure (“Resource AME”)- less predictable day to
                  day spending: in HMRC’s case, mainly Tax Credits, Child Benefit, Tax Free Childcare,
                  Lifetime ISA, other reliefs and entitlements.

        2.3   Budgets are split between those voted by Parliament and those where appropriation is
              covered in other legislation (non-voted).

        2.4   In addition, Parliament votes a net cash requirement, designed to cover the elements
              of the above budgets which require HMRC to pay out cash in-year.

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HMRC Main Estimate 2019-20

   3 Efficiency plans

        3.1   Our Spending Review 2015 settlement provided HMRC with additional funding to
              transform HMRC, making it quicker and easier for customers to report and pay their
              taxes online; and to tackle avoidance, evasion and non-compliance.

        3.2   In 2017-18 HMRC made sustainable annual efficiency savings of £410 million against its
              target of £380 million, in line with Spending Review 2015 and subsequent fiscal events.
              We continue to work towards £717 million target of annual, sustainable efficiencies by
              2019-20.

   4 Performance

        4.1   HMRC look at a range of compliance, operational and customer service measures
              throughout the year to assess our performance. Monthly reports shows how HMRC has
              done against its key customer service performance objectives, such as:
              • use of digital services
              • answering phones
              • handling customer post
              • responding to complaints

   5 Ambit changes

        5.1   No changes to the Ambit are required.

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HMRC Main Estimate 2019-20

     6 Departmental Expenditure Limits (DELs)
       Table A: DEL Mains 2019-20 budget compared to 2018-19 Supplementary Budget

 Subheads Description                  Resource                                                 Capital

                                       This year      Last year                                 This year       Last year
                                       (Main          (Supp                                     (Main           (Supp
                                       Estimates      Estimates                                 Estimates       Estimates
                                       budget         budget          Change from last   see    budget          budget       Change from last
                                       sought)        approved)       year               para   sought)         approved)    year               see para
                                       £ million                                                £ million                                  %
                                                                                                                                    -
 A         HMRC Administration             3,705.5        3,578.6      126.9        4%   6.1          298.7          366.5       67.9    -19%   6.1
 B         VOA Administration                164.2          156.3         7.9       5%   6.3              8.0          9.3        -1.3   -14%   6.3
 C         Utilised Provisions                30.0           52.8       -22.8     -43%   6.6
           sub total (voted)               3,899.7        3,787.8      111.9        3%                306.7          375.9      -69.2    -18%

 D         National Insurance Fund           283.3          287.0        -3.7      -1%   6.8
           sub total (non-voted)             283.3          287.0        -3.7      -1%

           total voted and non
           voted                           4,183.0        4,074.8      108.2        3%                306.7          375.9      -69.2    -18%

             Note: Table may not appear to add up due to rounding’s

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HMRC Main Estimate 2019-20

        HMRC Administration (Section A)

        6.1   This section covers all of the running costs and capital investment provided to HMRC to
              deliver our objectives of maximising revenues due and bearing down on avoidance and
              evasion, transforming tax and payments for our customers and designing and delivering
              a professional, efficient and engaged organisation.

        6.2   Between Mains and Supplementary the balance of Resource and Capital is reviewed,
              and where necessary funding is switched between Resource and Capital, which is in line
              with Managing Public Money guidance.

        VOA Administration (Section B)

        6.3   This section covers the running costs of the VOA, which from 2017-18 included funding
              transferred from DCLG. The VOA also recoups expenditure through income. The VOA
              has capital investment provided to enable its transformation.

        6.4   The VOA received additional funding for Revaluation 2021 following the announcement
              in the Spring Statement that the next non-domestic rating revaluation would be brought
              forward to 2021. At Supplementary Estimates in 2018-19, the VOA received additional
              Resource DEL Programme funding of £7.5m and Capital DEL of £1.5m. At the Main
              Estimates in 2019-20, VOA received additional Resource DEL Programme funding of
              £25m.

        6.5   VOA also received additional funding at Mains 2019-20 for increased pension
              contribution costs and funding agreed to enable the VOA to meet in-year commitments.

        Utilised Provisions (Section C)

        6.6   This section covers the provision requirements for HMRC. When provisions are utilised
              the cost is moved from AME to DEL as an equal and opposite transaction. Provisions are
              inherently unpredictable in terms of the timing and value of settlements. HMRC have
              an established process in place to regularly review and monitor provisions.

        6.7   Provisions in HMRC primarily relate to settling legal claims against the department.
              Provisions requirements will be reviewed at the Supplementary Estimates.

        National Insurance Fund (Non-Voted) (Section D)

        6.8   This section covers the budget for administration of the funds and the collection of
              National Insurance contributions. HMRC is responsible for the administration of the
              National Insurance Funds of Great Britain and Northern Ireland.

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HMRC Main Estimate 2019-20

   7 Explanations of changes (DEL) since SR 15

   Table B: Summary of changes to control totals since Spending Review 15
                                            Resource DEL        Resource DEL
                                                                                                TDEL Including
              Event (£m)                      Excluding           Including      Capital DEL
                                                                                                 Depreciation
                                            Depreciation        Depreciation
Spending Review 2015                               2,927.0             3,198.0          216.0          3,414.0
Movement of funding for VOA from DCLG                122.3               122.3                           122.3
Net Fiscal Events                                    156.0               156.0           12.7            168.7
Help to Save                                          15.0                15.0                            15.0
EU Exit Funding                                      297.0               297.0           78.0            375.0
VOA Reval 21 Funding                                  25.0                25.0                            25.0
Additional funding from HMT                          214.9               214.9                           214.9
Net transfers with other Departments                  46.3                46.3                            46.3
Adjustments for Depreciation                             -               108.4                           108.4
Main Estimate 2019 - 20                            3,803.5             4,183.0          306.7          4,489.6

              Note: Table may not appear to add up due to rounding’s

        7.1    The movement of Resource DEL funding for the VOA from the Department for
               Communities and Local Government (DCLG) is an administrative change to simplify the
               way the VOA receives its funding, which does not increase spending power.

        7.2    Resource DEL and Capital DEL funding has been received for Help to Save and new
               activity at Autumn Budget 2017 and Spring Budget 2019.

        7.3    Funding was agreed for activity to prepare the UK for exit from the EU. This funding is
               for staff necessary to develop and operate our activities for our customer services and
               compliance activities that are affected by the exit from the EU, IT changes required to
               HMRC systems, coordination and delivery of cross government border activity, and
               other activity that supports the exit from the EU.

        7.4    Additional funding for Revaluation 2021 following the announcement in the Spring
               Statement 2018 that the next non-domestic rating revaluation would be brought
               forward to 2021.

        7.5    Additional funding from HMT to address the increase in pension contribution costs and
               funding agreed to enable HMRC to meet in-year commitments.

        7.6    Net Transfers with OGDs over the SR 15 period as per the table below.

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HMRC Main Estimate 2019-20

      Table C: Summary of budget transfers with OGDs since Spending Review 15

        Budget Transfers                                                          £m
        Incoming

        Transfer from DWP Universal Credit                                       60.5
        Transfer from OGDs (Operational Delivery Profession)                      1.5
        Transfers from DFID (ODA)                                                 3.8
        Transfers with FCO for One HMG                                            2.1
        Transfer from CO (NCSP)                                                   1.5

        Outgoing

        Transfer out to OGD for SB15 related measures                           (22.7)
        Other outgoing transfers to OGD’s                                        (0.3)

        Total                                                                    46.3
                Note: Table may not appear to add up due to rounding’s

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HMRC Main Estimate 2019-20

   8 Annually Managed Expenditure (AME) Table
   Table D: AME Mains budget 19-20 compared to Supplementary budget 18-19

    Subheads                                  Description                                                               AME
                                                                                       This year           Last year
                                                                                                                                    Change from last   See
                                                                                       (Main Estimates     (Supp Estimates
                                                                                                                                    year               para
                                                                                       budget sought)      budget approved)
                                                                                                            £ million                            %
   E             Child Benefit                                                                 11,699.6                 11,969.3     (269.7)    (2%)    9.3
   F             Tax Free Childcare                                                               286.1                    145.9       140.2     96%    9.4
   G             Providing payments in lieu of tax relief to certain bodies                       101.1                      97.4        3.6      4%    9.5
   H             Lifetime ISA                                                                     345.4                    312.6        32.8     10%    9.6
   I             HMRC Administration                                                                30.0                     55.0     (25.0)   (45%)    9.7
   J             VOA - Payments of rates to LAs on behalf of certain bodies                         81.5                     76.5        5.0      7%    9.8
   K             VOA Administration                                                                  2.0                      2.0          -      0%    9.9
   L             Utilised Provisions                                                              (30.0)                   (52.8)       22.8   (43%)   9.10
                 Sub Total (Voted)                                                             12,515.6                 12,605.9      (90.3)    (1%)

   M             Personal Tax Credit                                                           25,068.2                 23,475.1     1,593.1     7%    10.2
   N             Other Reliefs and Allowances                                                   5,116.5                  4,624.8       491.8    11%    10.3
                 Sub Total (Non-Voted)                                                         30,184.8                 28,099.9     2,084.9     7%

                 Total Voted and Non-Voted                                                     42,700.3                 40,705.7     1,994.6     5%

               Note: Table may not appear to add up due to rounding’s

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HMRC Main Estimate 2019-20

   9 Explanations of changes (Resource AME Voted)
        9.1   HMRC’s AME budgets consist primarily of Child Benefit, Personal Tax Credits and
              Corporation Tax Reliefs. These budgets have been set at the Main Estimate aligning with
              forecasts endorsed by the Office for Budget Responsibility (OBR) for Spring Statement
              2019.

        9.2   A decrease of (£90.3m) Voted AME, which represents a 1% decrease on Supplementary
              Budget and consists of the following:

        Child Benefit (Section E)

        9.3   A (£269.7m) decrease in Child Benefit (2% decrease on Supplementary Budget) which
              aligns with Spring Statement 2019. This mains budget is on a cash basis, the
              Supplementary budget is on an accruals basis.

        Tax Free Childcare (Section F)

        1.1   A £140.2m increase (compared to Supplementary Budget) in Tax Free Childcare reflects
              the expected growth rate since the scheme launched in April 2017 and aligns with the
              Spring Statement 2019.

        Payments in Lieu of Tax Relief to Certain Bodies (Section G)

        1.2   A £3.6m net increase (4% increase on Supplementary budget) consisting of:
              • £4.5m increase in Gift Aid Relief on Micro Donations.
              • (£0.8m) decrease in Stakeholder Pensions

        Lifetime ISA (Section H)

        1.3   A £32.8m increase (10% decrease on Supplementary budget) reflects the OBR approved
              forecasts which is based on more recent scheme uptake rates and levels of investment,
              since the scheme launched in April 2017.

        HMRC Administration (Section I)

        1.4   A £25m decrease in new provisions. HMRC have an established process in place to
              regularly review and monitor provisions.

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HMRC Main Estimate 2019-20

        Payments of rates to LAs on behalf of certain bodies - VOA (Section J)

        1.5   A net £5m budget increase due to changes in diplomatic properties and associated rates.
              The VOA compensates local billing authorities for rates due on properties occupied by a
              mission with diplomatic status.

        VOA Administration (Section K)

        1.6   This covers pension costs, provisions, impairments and revaluations required by the
              VOA. No changes at Mains.

        Utilised Provisions (Section L)

        1.7   When HMRC utilise a provision the cost is moved from AME to DEL as an equal and
              opposite transaction.

   2 Explanations of changes (Resource AME Non-Voted)
        2.1   An increase of £2,084.9m Non-Voted AME, which represents a 7% increase on last year’s
              Supplementary Budget and consists of the following:

        Personal Tax Credit (Non-Voted) (Section M)

        2.2   A £1,593.1m increase represents a change of 7% and aligns with the forecast endorsed
              by the OBR. This mains budget is on a cash basis, the Supplementary budget is on an
              accruals basis.

        Section N Other Reliefs and Allowances (Non-Voted)

        2.3   A £491.8m net increase (11%) since Supplementary last year. This section covers a range
              of tax reliefs, the largest being Large Companies Research and Development Relief
              £1,950.4m (increase of £173.1m), Small Companies Research and Development Relief
              £2,085.3m (increase of £199.9m), and Film Tax Relief £604.4m (£44.6m). These budgets
              align with forecasts endorsed by the OBR.

   3 Explanations of changes (Capital AME)
        3.1   £10,000 is held in Capital AME for the utilisation of the Child Trust Fund provision. No
              changes required.

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HMRC Main Estimate 2019-20

   4 Ring fenced budgets

        4.1   Within the budget totals above, the following elements are ring fenced (i.e. savings in
              these budgets may not be used to fund pressures on other budgets).
        Brexit funding Total DEL £375m
        4.2   Funding was agreed for activity to prepare the UK for exit from the EU.
        Depreciation DEL £379.4m
        4.3   This ring-fence is common to all departments.

   5 Approval of Memorandum

        5.1   This Memorandum has been prepared in accordance with the guidance in the Estimates
              Manual provided by HM Treasury.

        5.2   The information in this Memorandum has been approved by the Principal Accounting
              Officer, Sir Jonathan Thompson.

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