HMRC gets the green-light to hire 5,000 extra tax officials, ‘but each one won’t have IR35 on their mind’

Experts aren’t sure Labour’s ‘bunch of fives’ announcement means a bloody nose for contractor limited company status. But expect extra HMRC bodies behind tax return, MTD and digital platform reporting checks.

The rundown: The Labour government has quietly given the all-clear for 5,000 new tax officials to join the ranks of IR35 enforcer HMRC.

The detail: Exchequer secretary to the Treasury James Murray gave the all-clear for the 5,000 in the House of Commons on July 29th.

But the 5,000 new tax recruits, representing almost 10% of HMRC’s 63,000-strong workforce, got their first mention back in April 2024.

In “Labour’s Plan to Close the Tax Gap,” the party said it would hire the 5,000 to recover £5 billion in unpaid taxes, over the next five years.

‘Bunch of fives’

This so-called ‘bunch of fives’ pledge went missing in Labour’s 2024 general election manifesto, but it did vow to “build capacity within HMRC.”

Murray was next to refire the 5,000, hailing the new HMRC hires as part of Labour’s “comprehensive approach to tackling the tax gap.”

Also on July 29^th in the Commons, Murray said the hiring process for extra staff into HMRC “compliance roles” had “already started”.

But there was no word yesterday from HMRC on where the 5,000 will be deployed despite a breakdown request by ITContracting.com.

Why it matters: Small businesses, including contractor limited companies, are the biggest contributors to the tax gap.

In fact, according to the freshest data available (2022-23, published in July 2024), small firms are behind £24.1bn of the £39.8bn gap.

That would appear to make small firms a target if the reason for the HMRC recruitment spree is, as Labour says, to try to close the gap.

Worse, given the October Budget looms, small firms have increased their offending in terms of what’s owed versus what’s paid.

In particular, incorporated and unincorporated traders accounted for 44% of the tax gap in 2018-19, but it grew to a hefty 60% in 2022-23.

At the other end of the spectrum to targeting and enforcement fears, the hope is the 5,000 may improve HMRC’s customer service.

‘All-time low’

In February 2024, HMRC customer service was described by an influential panel of MPs as being “at an all-time low.”

The Public Accounts Committee also said HMRC’s performance has “continued to deteriorate” and that it “struggles to cope”.

Specifically, 63% of callers to HMRC are forced to wait more than 10minutes to speak to an adviser, compared to 46% in 2021-22.

‘Resources’

HMRC told the PAC that it did not have the “resources to meet rising demand” for its phone/post services at “expected standards.”

In addition, a survey of tax staff by the ARC union shows that 15% of HMRC’s workforce loses more than four hours to poor IT each week.

The incoming 5,000 tax officers potentially matter, then, for productivity purposes, as four hours equates to 10% of the work day.

‘Satisfied, or very satisfied’

But officially, it’s not HMRC’s technology, productivity, or customer service which have anything to do with the 5,000 new bodies.

It’s not HMRC morale either (only 24% “would recommend HMRC as a great place to work”) even though like customer service (78% of users ‘satisfied’ or ‘very satisfied’ with HMRC phone or digital services), that finding represents an improvement.

Instead, the 5,000 incoming tax officers will be part of “making sure more of the tax revenues that are owed are correctly paid.”

Murray reiterated: “[We] will invest in HMRC’s compliance work, hiring around 5,000 additional staff to recover more tax revenues.”

What it means: Labour totted up the number of extra tax staff to be hired by HMRC in its April 2024 tax gap document.

It arrived at the round figure of 5,000 on the basis that each “FTE compliance officer” at HMRC “accounts for £1.1m in additional tax revenue.”

“Reaching £5bn [recovered] will therefore require an additional 5,000 staff to be recruited and trained to work within HMRC,” the document states.

‘Ambitious’

Chartergates says Labour hopes that by increasing HMRC’s workforce by about 10%, it will help meet the “ambitious [collection] target.”

The law firm understands that HMRC has been drawing recently on externally-commissioned resources to collect tax debt.

And the firm says this third-party support will continue in the short-term, while recruitment and training of the new HMRC hires takes place.

A Labour party document cited by Civil Service World reportedly said as much earlier this year.

‘Don’t you just love the confidence?’

Yet not all statements related to the 5,000 incoming tax staff, including a follow-up Murray made, are convincing across the board.

“The Exchequer Secretary to HMT has said ‘the government will reform the tax system by…designing out non-compliance before it happens.’”

“Don’t you just love the confidence here?” said an adviser to contractors, Carolyn Walsh, sarcastically.

“I can tell you; HMRC has never managed to ‘design out non-compliance before it happens.’ So that’s one mission doomed to fail.

“Clamping down on tax avoidance has been an exercise in bolting the stable door. I really don’t have much confidence in that statement.”

And Walsh should know — she was a tax inspector for the UK tax authority for more than eight years.

‘Influx of 5,000 tax officials will affect contractors’

She told ITContracting.com: “As to the $64 million dollar question — ‘Will this influx of 5,000 tax officers affect contractors?’

“Yes it will, because it’s mostly the taxes on income-generated which interests HMRC, and one-person businesses fall into that category.

“But contractors who do things correctly won’t fall into the main focus of attention. So I don’t think they need to worry that there will be 5,000 new tax staff, each with IR35 on their mind.”

‘Compliance needed by those engaging the self-employed’

Off-payroll working expert Seb Maley doesn’t sound quite so sure that the new recruits won’t have ‘status’ as part of their remit.

He says the hiring by HMRC of 5,000 new staff is designed to “better equip the tax office”.

As to whether the Revenue will discriminate sounds to Maley, chief executive at Qdos, like it remains to be seen.

“HMRC [is looking] to clamp down on suspected non-compliance and recoup money lost to tax avoidance.

“What does this mean [in practice]?” he asked. “Well, compliance is essential — whether you’re self-employed or a business engaging these workers.”

‘Tax records and filings likely face increased HMRC scrutiny’

A consultant at Chartergates, Naseerah Mussa, says the “average self-employed contractor” potentially faces an increase in more mundane flashpoints with HMRC.

“The Treasury’s plan to increase staff at HMRC will likely mean increased scrutiny on self-assessment filings and business records,” Mussa told ITContracting.com.

“With the government’s focus on recovering unpaid taxes, contractors may face more frequent checks and enquiries into their tax affairs.”

‘Easy to guess where the focus will be’

Formerly of the Revenue, Walsh echoed: “The other big area which affects the self-employed operating as sole traders is the self-assessment net tax gap, which has increased from £7.7bn to £8.5bn in the last five years.

“In 2020/21 it was estimated that almost 40% of self-assessment returns were under declared, along under declarations by non-business taxpayers. This makes up around 60% of the total tax gap, so it’s easy to guess where the focus will be heading.”

Now boss at Oblako Ltd, Walsh expects some of the new HMRC recruits to be required to introduce, oversee and police Making Tax Digital for income tax (set to be introduced on April 6^th 2026 for the self-employed and landlords with gross annual income of over £50,000).

‘Quality and conduct of the new HMRC recruits’

At Chartergates, Mussa says now in-force reporting rules for digital platforms also probably require a step-up in HMRC manpower.

Since January 1st 2024, digital platform operators (in the UK) have had to collect, verify, and report information on the income of sellers of goods and services on their platforms to HMRC.

The Chartergates consultant reflected: “The expanded team at HMRC will also be focussing on this area to ensure that all taxes are collected and accounted for, including via self-assessment.

“[But] as with all governmental recruitment drives, it is the quality and conduct of the recruits that matters, more than the overall number.

“And one hopes that the new recruits are adequately trained and able to focus on genuinely improving the service provided to taxpayers.”