Parliament’s spending watchdog has called on the government to explain and fix issues with the tax system that have denied whole groups of freelancers and self-employed workers financial support during the coronavirus pandemic. The powerful cross-party public accounts committee (PAC) said some of the workforce had “not had a penny” from the government’s multibillion-pound support schemes despite repeat lockdowns blocking many from work, while some large companies had received taxpayer support and paid dividends to shareholders and high salaries to executives. It said “quirks in the tax system” and problems with HM Revenue and Customs’ computer systems had allowed people to fall through the cracks in the support schemes and made it more difficult for the tax authority to identify fraud. Campaigners have warned that about 3 million taxpayers – 10% of the UK workforce – have fallen through gaps in the support system and have received no help since the start of the pandemic almost a year ago, with self-employed workers and freelancers among the most likely to be excluded. Demanding answers from officials, the group of MPs said HMRC should, within six weeks, publish an explanation of why it cannot 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. The report comes amid growing pressure on the chancellor, Rishi Sunak, to refresh the government’s emergency support schemes as the UK economy edges closer to a double-dip recession during the second wave of the pandemic.
The PAC said it was concerned that some self-employed taxpayers may have moved on to company payrolls because of the government’s IR 35 tax rules – aimed at stopping tax dodging by disguising employment through so-called personal service companies – but had not been classed as employed at the right time to be eligible for emergency support. It also said it was common in some sectors – such as TV, film and the wider creative industries – for freelancers to work on a series of short-term employment contracts with gaps in between, which could mean they miss-out on financial support. The government has spent more than £46bn subsidising the wages of almost 10m jobs since the pandemic began through the furlough scheme, which has been extended until the end of April. More than 2m claims worth more than £18bn have been paid out through the similar self-employed income support scheme. Warning that people were still falling through the cracks, the PAC report said that HMRC was coming under strain as it attempted to upgrade its IT systems, handle increased demand during the pandemic, and adapt to the UK’s post-Brexit customs regime. The report warned the tax authority it was spending too much time patching-up out-of-date and potentially risky computer systems rather than modernising them, with these old systems making it tougher for HMRC to provide reliable and timely data. Meg Hillier, the chair of the PAC, said: “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.”