Adjudicator recommends HMRC develop a ‘listening’ culture

Published on 21 July 2017

HMRC’s complaints handling continues to improve, with the number of complaints about HMRC upheld by the Adjudicator falling for the third year in a row. However, the Adjudicator’s report says that HMRC still need to exercise their discretion better and learn lessons from the insight provided by complaints.

The 24th Annual Report of The Adjudicators Office was published on 13 July, covering the year to 31 March 2017, which was the Adjudicator Helen McGarry’s first year in the role. The Adjudicator and her team of 56 carry out impartial investigations into complaints about HMRC, The Insolvency Service and Valuation Office Agency referred to them by members of the public who have not been able to resolve their issues directly with the relevant agency. Complaints mainly centre around mistakes, unreasonable delays, poor and misleading advice, inappropriate staff behaviour and the use of discretion.

In 2016-17 the Adjudicator resolved 1,540 complaints, of which over 96% related to HMRC. The complaint was either partially or substantially upheld in 41% of the cases, a significant drop on the figure of 73% in 2015-16. The Adjudicator noted that this indicated ‘very real improvements in performance’ by HMRC, but she remained critical of the number of complaints where HMRC’s internal processes exacerbated the impact on customers.

Complaints about tax credits

Approximately 65% of HMRC’s complaints were in connection with tax credits, a drop of 10% on 2015-16 which the Adjudicator believes is also a positive indicator of improvement, although it is noted that the actual number of complaints remains high. 46.5% of the complaints were either partially or substantially upheld, down from over 80% for the previous year.

In her report, the Adjudicator particularly identified a persistent failure by HMRC to correctly apply the policy of Notional Entitlement, a policy which LITRG and others successfully campaigned for and which benefits many who make innocent mistakes with their tax credits claims, often when they are in difficult situations. 

The Notional Entitlement policy allows HMRC to reduce an overpayment arising as a consequence of an inappropriate claim by an amount equal to the tax credits that would have been due had a correct claim been made. For example, this might occur when a joint claim incorrectly continues because the claimants do not inform HMRC about a relationship breakdown, but there would have been continuing entitlement had a single claim been made, The Adjudicator found that HMRC were not proactively applying the policy and that they were often interpreting the term ‘deliberate error’ incorrectly and so withholding the relief.

As a consequence of the Adjudicator highlighting these issues, HMRC have now re-evaluated this policy and introduced better processes for staff. However the Adjudicator’s office are still coming across cases where Notional Entitlement is not being given as old guidance is being followed, and so the Adjudicator feels more must still be done to make sure this policy is applied in all appropriate cases.

[Over £1.25 million of tax was given up by HMRC following the Adjudicator’s intervention, and compensation of over £70,000 was recommended.]

Use of discretion

One of the main areas where the Adjudicator sees room for improvement by HMRC is in their use of discretion. In one case study quoted in the report the Adjudicator upheld a complaint that HMRC did not properly consider the possible application of Extra Statutory Concession B41 (whereby a tax refund can be made if certain criteria are met, even if strictly, it is out of time to be repaid) to her circumstances, despite the complainant writing several times requesting that they do so. Instead, after several requests HMRC made the refund under another discretionary power, but offered no explanation so the claimant was unsure whether the payment was under B41 or not. The Adjudicator found that the evidence did not support HMRC’s position that they had considered ESC B41 each time the complainant had written to them, and identified a need for HMRC to explain the use of their discretionary powers properly to taxpayers.

In the Adjudicator’s view it is critical that discretion is considered early, applied fairly and is proportionate in all cases and she will continue to challenge HMRC to do this. She believes effective use of discretion – together with better communication about the way in which a decision is arrived at – will help reduce the number of complaints made.

Learning from complaints

The Adjudicator believes that a key part of her role is to ensure that lessons learned from complaints are understood and shared. She is keen for HMRC to see complaints as a way of gaining insight by listening to and engaging with their customers and so to ultimately drive up service standards, an approach which we fully support. However the Adjudicator says ‘HMRC have some way to go in developing an organisational culture that is conducive to the level of listening that is required to learn from complaints.’

For some years now HMRC, encouraged also by the previous Adjudicator, have tried to embrace the concept of ‘Don’t waste a complaint’ – in other words, establish what can be learned from complaints and apply the lessons towards improving customer service. The current Adjudicator places renewed emphasis on this aspect of complaints handling:

“The contemporary approach to complaints frames them in terms of customer insight and opportunity.”

While it is reassuring that the process of learning from complaints is continuing, it is disappointing that it has been so long in taking root. Meanwhile, costs are being incurred, and tax being given up, because of a failure to learn those lessons. We echo the Adjudicator’s call for HMRC to be more receptive to complaints at all levels, and approach them constructively so as to improve the service that taxpayers receive. 


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