Corporate report

Insight report: Applying Customer Circumstances to Decision Making

Published 26 September 2024

Background: Why this topic?

One of the core elements of the role of the Adjudicator and Adjudicator’s Office (AO) is to draw on our insight and expertise to provide learning from the complaints we investigate and use this to help HM Revenue and Customs (HMRC) and our other stakeholders improve services for customers.

This insight report is also called a Level 3 report. In our Level 3 reports we use our insight and expertise to analyse specific themes and make recommendations to improve services for customers. This Level 3 report provides feedback and insight linked to the identification of individual customer circumstances and needs and the application of these in HMRC’s decision making and use of discretion. The purpose of the report is to:

• demonstrate the need for HMRC to identify individual customer circumstances as early as possible and apply these to their decision making
• share learning on where HMRC has missed opportunities to apply the discretion available to them
• provide examples of where those missed opportunities led to unfair customer outcomes
• demonstrate how early resolution is not only good for customers, but also saves money for HMRC
• identify the risks and blockers this presents to HMRC embedding and applying their Charter standards

HMRC’s customer base is diverse due to the range of services they deliver. As such, a customer’s understanding of HMRC’s functions and their ability to fully comply with HMRC’s requirements will vary. The tax and benefits regime is vast and complex. To operationalise this, HMRC has put in place large volumes of process and guidance and provides training for staff to be able to understand and apply this. This is entirely understandable, but a consequence is a risk that following process can override spotting and properly considering customers’ individual circumstances.

Customers cannot know and understand every facet of HMRC’s operations and where their individual circumstances may warrant a different approach. Many will also not understand the scope of HMRC’s discretionary powers. In short, for many of HMRC’s customers, there is an imbalance in power.

Because of this, the responsibility to take account of individual circumstances lies with HMRC, in line with their Charter commitments. In the case studies below, each customer made HMRC aware of their individual circumstances either before or during the complaints process. Regrettably, this was only considered after escalation to the Adjudicator’s Office.

We recognise the challenge to the department in identifying individual circumstances, but it is important they seek to do this. The complaints escalation process is costly, so resolving customer issues at the earliest opportunity also saves resource and is more efficient. We know that when complaint handlers are empowered to act and have access to supportive escalation channels that quick action can be taken to resolve complaints.

1. Executive Summary

The consideration and application of individual circumstances should be utilised at the earliest opportunity. HMRC have committed through their Charter standard of ‘being aware of your personal situation’ to be mindful of customer’s wider personal situation and provide extra support where needed. The identification of individual circumstances and the use of discretion (where appropriate) is fundamental to achieving this.

Using discretion and applying customer circumstances in decision making is not easy, especially in an environment where complex legislation and the intent of legislation must legally be applied. However, the opportunity to utilise the powers of discretion that HMRC have is beneficial for all parties. It can result in achieving the right result first time for the customer as well as preventing delay, additional cost, and/or the need for both HMRC and the customer to enter a complex Tribunal regime.

Not identifying customer vulnerabilities and circumstances and applying discretion where appropriate can incur higher costs for HMRC than those faced by taking a proactive approach to whether collection and recovery is appropriate. This is also an issue identified by the Parliamentary Accounts Committee.

It is clear that HMRC has the tools and the intention to resolve those complaints where discretion is the better path. The challenge is the deployment of discretionary approaches. In the case studies provided in this report we saw a hesitance from HMRC’s complaint handlers to use judgement and apply discretion based on individual circumstances. It is not clear why this is happening, but this can have a significant impact on the customer.

The case studies show how opportunities to apply discretion were missed, illustrating how progress still needs to be made in fully embedding the Charter standards as part of HMRC’s decision making. To further embed the Charter standard ‘being aware of your personal situation’ HMRC should take steps to identify individual customer circumstances as early as possible and consider the use of discretion where appropriate.

To do this, they should utilise their guidance on dealing with vulnerable customers and HMRC’s principles of support for customers who need extra help.

Below is a summary of our recommendations, which can be found in full in section 6:

1. HMRC should ensure that they are clear to all those involved in the complaint process that discretion is a key tool in HMRC’s approach to resolving complaints

2. We recommend that some staff in each area are specifically and more deeply trained on the use of discretion to provide advice and guidance

3. We propose that HMRC take a sample of Tier 1 and Tier 2 complaints to assess whether the use of discretion related to individual circumstances could have resolved the complaint sooner

4. We recommend that HMRC ensure that the operational guidance complaint handlers use on a daily basis offers an appropriate level of support based on the customers individual circumstances. This should not be restricted to vulnerable customers and instead should be HMRC’s approach to dealing with all customers in line with their principles of support for customers who need extra help

2. Case Studies: Individual Customer Circumstances and Discretion

To bring this issue to life, we have focused on four case studies where we think the customer’s circumstances merited a different approach. In each instance the issue was not picked up until the cases were escalated to us, but once the right people with the right skills in HMRC became involved, they were able to resolve them quickly.

The case studies have all completed the HMRC complaint journey, having received responses at both Tier 1 and Tier 2. In each complaint the Adjudicator either fully upheld or partially upheld the complaint and the redress was implemented by HMRC.

Case Study 1: Tax Credits Apportionment of Debt

This complaint concerned a tax credit debt. The customer told HMRC that the tax credits were claimed without his knowledge, which is not unusual. What was different, and should have raised a red flag, was that the customer clearly stated that he was a victim of abuse.

The customer provided a detailed and open account of the abuse he experienced along with supporting evidence declaring the abuse as the reason for his divorce. HMRC did not accept the divorce petition as evidence that he was unaware of the tax credit claim. They explained that they required ‘independent correspondence’, though it was unclear what this meant.

Following this, the customer provided additional information explaining that they had referred the matter to the benefit fraud team along with copies of correspondence from their solicitor where they suggested applying for an injunction against the ex-partner. In their accompanying letter to HMRC, the customer explained that they had undertaken counselling sessions to help with the mental health issues they experienced. HMRC were not persuaded.

The customer provided us with a letter from his counsellor which set out the abuse he had suffered during the marriage. We sent this to HMRC who accepted it and transferred the full liability to his ex-wife.

In our recommendation letter, we said: “[HMRC’s] response showed no empathy or recognition for what you had told them and did not demonstrate their Charter commitment of ‘being aware of your personal situation.’

[HMRC] also did not clearly explain why your evidence was not acceptable and were vague in suggesting what they could accept. I believe this to be a result of HMRC’s lack of clear guidance in this matter.”

The customer should have been listened to. Understanding his circumstances would very likely have led to him providing evidence sufficient to satisfy HMRC. Instead, the customer was left to guess at what might be sufficient.

It was clear that HMRC’s complaint handlers and frontline staff were hamstrung by a lack of specific guidance on what evidence would be acceptable. However, this gap in guidance presented HMRC with an opportunity to consider the evidence they did have and use their judgement and discretion to reach a decision. This opportunity was not taken.

It was also concerning that what guidance there was focused mainly on physical abuse when other kinds of abuse are well documented and equally damaging. Notwithstanding that lack of guidance, HMRC had the discretion to act but did not do so.

Decision: Complaint fully upheld and £150 redress awarded.

Case Study 2: Tax Credits Overpayment

The customer’s Tax Credit debt was being recovered through his Universal Credit (UC) claim. He told HMRC and us that he should not be liable for the debt due to financial hardship and the impact on a long-standing serious health condition.

When considering the complaint, HMRC focussed on Code of Practice 26 (COP 26) and whether the customer met their responsibilities. They considered exceptional circumstances but decided the customer was able to manage his tax affairs at the time the overpayment arose.

The customer was supported in making his complaint by a Welfare Rights Service attached to his local council. They asked HMRC to write off the overpayment due to the financial impact and the impact on the customer’s mental health. HMRC were provided with a financial statement and a letter from a healthcare professional explaining the effect that the mental health condition had on the customer’s ability to manage his affairs and day-to-day living.

HMRC took a narrow view of the customer’s circumstances when reaching their decision. Instead of considering the evidence provided and the impact that continuing to recover the overpayment would have on his mental health and finances, they focussed on guidance that meant that the overpayment could be recovered.

We found that HMRC had opportunities to recognise the customer’s circumstances and apply the discretion available to them before the debt was transferred to the Department for Work and Pensions to be collected.

Following discussions with HMRC at a senior level, they accepted that in this case, the debt should be written off and took action to ensure that happened. This meant that the customer would no longer have their UC claim reduced to pay the debt, and any money already taken from him would be returned.

In this case, it is not clear whether HMRC’s complaint handlers did not feel empowered to use the discretion available to them or they did not know that they had the option or ability to use discretion. This led HMRC to make a narrow decision, based only on their guidance on recovering overpayments - COP 26, without consideration of the information the customer was providing and the impact they were experiencing.

Once escalated to a senior level, that understanding changed significantly, resulting in a positive and fair outcome for the customer.

Decision: Complaint fully upheld, debt written off and £250 redress awarded.

Case Study 3: Repayment of Tax

This complaint concerned the recovery of an underpayment of tax of £605.80. It was not disputed that the money was owed. However, it was similarly clear that the customer was suffering significant financial hardship.

The file showed that after the initial complaint, the customer followed up on this in quick succession, raising concerns about his financial circumstances. It took around two months for HMRC to send two tier one responses, two weeks apart, recommending at first £30 redress then £50.

A further six letters were sent by the customer to HMRC outlining the financial difficulties he was suffering and asking for help. Unfortunately, HMRC did not act on them. He was told that the money would be recovered automatically.

During our investigation, HMRC agreed that they failed to offer the customer support despite him stating several times that recovery of the underpayment was causing financial hardship and having an impact on his mental health. The handling did not align with the Charter standards, specifically, being mindful of personal circumstances. We recommended an additional £100 redress for the financial and mental impact caused.

What was clear is that there was and is guidance on what to do in these situations (discussed above), but it was not followed, exacerbating an already difficult situation for the customer.

Decision: Complaint fully upheld and £100 redress awarded.

Case Study 4: Tax Credits Overpayment

This complaint was about Tax Credits overpayments for 2013 to 2014 and 2015 to 2016 of £3,330.07 and £1,304.48, respectively. The customer disagreed with the amount of income used in the awards, but HMRC said that he was out of time to request a Mandatory Reconsideration.

The customer did not feel that HMRC had considered his health conditions when reaching their decision. We sent medical evidence provided by the customer to HMRC and asked them to consider if ‘exceptional circumstances’ prevented him from disputing the overpayments within the given time limits under COP 26. HMRC had first received copies of the medical evidence at Tier 2 of their complaints process.

HMRC considered exceptional circumstances but decided that they could not write off the overpayment for 2013 to 14 as the evidence showed that the customer was able to fulfil his responsibilities in that tax year.

During our enquiry process, HMRC said that the medical evidence provided did not contain sufficient evidence regarding the customer’s treatment and the impact of this to write off the overpayment. However, whilst reviewing the information provided, they had identified a letter from a healthcare professional which contained detailed information about the customers condition, the significant treatment they were undertaking, his prognosis, and how the condition impacted him.

Based on this, HMRC agreed to write off the overpayment for 2015 to 2016 of £1,304.48.

We decided that HMRC should have considered the customer’s exceptional circumstances sooner than they did. HMRC registered a Tier 1 complaint on 14 July 2022, and received the letter from the healthcare professional on 17 June 2022 (27 days before).

This meant that HMRC had access to the medical evidence used to write off the overpayment at the time they were considering the customer’s complaint at Tier 1 and Tier 2 of the complaints process.

Decision: Complaint partially upheld, debt written off and £100 redress awarded.

3. Our Findings

The consideration and application of individual circumstances should be utilised at the earliest opportunity. HMRC have committed through their Charter standard of ‘being aware of your personal situation’ to be mindful of customer’s wider personal situation and provide extra support where needed. The identification of individual circumstances and the use of discretion (where appropriate) is fundamental to achieving this.

To meet this Charter aim, HMRC’s complaint handlers need to be proactive in identifying and confident in applying customer circumstances to their decision making. But we recognise that this is difficult when HMRC are managing hundreds of thousands of contacts. This is why embedding a culture of understanding is crucial. Providing safety nets through expert staff could support that cultural shift.

In all the case studies identified, HMRC had an opportunity independently to make the right decision prior to the involvement of the Adjudicator’s Office. In two of the cases highlighted, HMRC received all the information needed to reach an appropriate outcome, but either did not identify this as evidence or failed to apply this in their decision making. In another, the customer was explicit about finding themselves in financial difficulties, but this was not identified or taken into account.

The case studies demonstrate a strict adherence to process, a reliance on guidance to reach decisions and a reluctance to use discretion when available. In some of these examples, the correct outcome was clear (the debt being written off), but instead of taking this action, HMRC pursued the debt, suggesting that there may be a blocker to complaint handlers taking decisions with a financial impact.

We have seen a good understanding of customer circumstances and the impact these have on decision making during case discussions when complaints are escalated. These discussions have been collaborative and focussed on reaching an appropriate outcome based on the circumstances and situation of the complaint. They have also demonstrated that HMRC do have the ability proactively to use the discretions available to them to make fair and impactful decisions.

HMRC have discretions available to them to not collect tax (including benefits). These discretions allow HMRC to not collect all the tax due under the law if the cost in doing so outweighs the net return to the Exchequer. Whilst not appropriate in all cases, the principle of this approach is worthy of wider consideration.

In some of the case studies the amounts written off, although not small, are minimal when considered against the costs incurred by HMRC from the complaint escalating through the complaints process. As such, failure to identify customer vulnerabilities and circumstances and not applying discretion can incur higher costs for HMRC than by taking a proactive approach to considering whether collection and recovery is appropriate. This was also an issue identified by the Parliamentary Accounts Committee.

Had HMRC applied the customer’s individual circumstances to their decision making and had they considered the Charter standards when reaching their decision; HMRC could have saved time, resource, and significant costs. They would also have built customer confidence and trust, improved the customer service offered and shortened the customer journey.

4. Recommendations

To further embed the Charter standard ‘being aware of your personal situation’ HMRC should take steps to identify individual customer circumstances and consider the use of discretion where appropriate. These should be core elements of complaint handling and wider decision making.

Based on our findings, our recommendations are as follows:

Recommendation 1

HMRC should ensure that they are clear to all those involved in the complaint process that discretion is a key tool in HMRC’s approach to resolving complaints.

Recommendation 2

We recognise that process is crucial to operationalising HMRC’s complaint handling and indeed their frontline activities. If not already available, we recommend that some staff in each area are specifically and more deeply trained on the use of discretion to provide wider advice and guidance.

Recommendation 3

To help HMRC understand the opportunities available when applying individual understanding, we propose that HMRC take a sample of Tier 1 and Tier 2 complaints to assess whether the use of discretion related to individual circumstances would have: a) resolved the complaint quicker and b) improved the service HMRC provided.

Applying that approach through the lens and opportunity of the Charter is crucial to its success, it would also be useful to quantify any cost savings to the department on the assumption that early deployment of discretion would have resolved the complaint quicker.

We would of course be happy to assist HMRC with the activities set out at point 3.

Recommendation 4

HMRC should ensure that the operational guidance complaint handlers use on a day-to-day basis offers an appropriate level of support based on the customers individual circumstances.

HMRC’s principles of support for customers who need extra help says:

‘We are committed to providing tailored support at the earliest opportunity for customers who may need extra help. This is also in line with our legal responsibilities under the Equality Act, to provide reasonable adjustments to ensure no one is disadvantaged’.

HMRC have guidance in place for dealing with vulnerable customers, but updating this to support all customers will ensure that no one is disadvantaged by a lack of support irrespective of their circumstances. It is also more reflective of the principles of support, which are not restricted to customers with vulnerabilities, but instead focus on those who need extra support.

This means that HMRC’s guidance may need amending to incorporate a more inclusive approach.

5. Summary

In summary, HMRC have the tools and calibre of people to make a real difference to customers’ lives. The Charter sets the foundations, and the outcome is increased trust, revenue and complaint handling times and reduced complaint handling costs.

We see HMRC deploying discretion well, it just happens too late in many circumstances.

By empowering HMRC staff to stand back and ask the question: is this fair? will make a significant difference to many people.

This report has focused on one Charter principle. But the Charter as a whole has the potential to transform HMRC’s customer service. Embedding that culturally across HMRC, and we see positive steps in that regard, must remain a key priority for HMRC.