Recommendations & Conclusions
4 items
2
Recommendation
Thirty-Third Report - HMRC performance …
Rejected
Resourcing HMRC’s compliance work to maintain rather than reduce the tax gap means the government is missing out on billions in lost revenue. HMRC estimates that the tax gap—the difference between the amount of tax that should, in theory be paid to HMRC, and what was actually paid—was £32 billion …
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Resourcing HMRC’s compliance work to maintain rather than reduce the tax gap means the government is missing out on billions in lost revenue. HMRC estimates that the tax gap—the difference between the amount of tax that should, in theory be paid to HMRC, and what was actually paid—was £32 billion in 2020–21, or 5.1% of all tax liabilities, the same proportion as in 2019–20. This masks changes in the tax gap for each category of tax, with the tax gap for VAT decreasing while the tax gap for Corporation Tax, excise duties and income tax Self-Assessment increasing in 2020–21. HMRC bases its compliance performance and resourcing on maintaining the tax gap and stopping it from growing. However, there remains scope for reducing it; for every £1 that HMRC spends on compliance activities, it recovers £18 in additional tax revenue. The pandemic has created more uncertainty in the data that HMRC uses to estimate the tax gap, but HMRC does not currently report the range of uncertainty in its headline estimate. HMRC told us that this would be difficult to do, but possible. Recommendations: • HMRC should set out what level of investment in its compliance teams would be needed to reduce the size of the tax gap, and confirm what, if any, intention it has to pursue this. • HMRC should also calculate and report an uncertainty range for its headline tax gap estimate to provide more transparency to users of the estimate.
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Government response AI summary
The government disagrees with the recommendation to set out the level of investment needed to reduce the tax gap and to report an uncertainty range for the tax gap estimate, stating that funding levels are a decision for Treasury ministers and that they have a …
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HM Treasury
9
Conclusion
Thirty-Third Report - HMRC performance …
Rejected
With the resources it was given in the 2021 Spending Review, HMRC’s aim is to maintain the tax gap and prevent it from growing. For every £1 that it spends on compliance activity, it said it recovers £18 in additional tax revenues. HMRC sometimes gets additional resources from HM Treasury …
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With the resources it was given in the 2021 Spending Review, HMRC’s aim is to maintain the tax gap and prevent it from growing. For every £1 that it spends on compliance activity, it said it recovers £18 in additional tax revenues. HMRC sometimes gets additional resources from HM Treasury for particular purposes in return for additional tax revenues. HMRC said that typically this investment recovers between £10 and £20 in tax revenue for every £1 it spends.13 Fraud and error in the COVID-19 support schemes
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Government response AI summary
The government disagrees, stating that HMRC's funding levels are a decision for Treasury ministers based on advice from HMRC and HM Treasury officials, and it is right that this advice is considered in private.
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HM Treasury
21
Recommendation
Thirty-Third Report - HMRC performance …
Rejected
The government has a target of 2.4% of GDP to be spent on research and development.32 To encourage this investment, HMRC administers tax reliefs to companies via two schemes – one for large companies and one for small and medium-sized enterprises. HMRC said that the scale of the schemes is …
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The government has a target of 2.4% of GDP to be spent on research and development.32 To encourage this investment, HMRC administers tax reliefs to companies via two schemes – one for large companies and one for small and medium-sized enterprises. HMRC said that the scale of the schemes is growing all the time. HMRC said that it has published research that demonstrates that the two schemes increase research and development investment, albeit marginally for small and medium-sized enterprises. While this research demonstrates what additional research and development activity was stimulated, it does not quantify the benefit to the UK economy.33 26 Qq 47–49; C&AG’s report, para 7 27 Qq 58, 66 28 Qq 30, 47–48, 51, 55 29 Q 51 30 Q 60 31 Q 64 32 Q 96 33 Qq 103–106 HMRC performance in 2021–22 15
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Government response AI summary
The government disagrees with the recommendation, stating that HMRC has already published reports on the additional R&D expenditure stimulated by tax relief schemes and that further analysis will be carried out in the future but not within 12 months, although an update will be provided …
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HM Treasury
22
Conclusion
Thirty-Third Report - HMRC performance …
Rejected
In 2021–22, HMRC granted research and development tax reliefs worth £9.5 billion.34 HMRC said the relief is an attractive target for abuse, whether by companies that have not carried out any research and development or by advisors encouraging companies to push the boundaries of what expenditure is eligible to be …
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In 2021–22, HMRC granted research and development tax reliefs worth £9.5 billion.34 HMRC said the relief is an attractive target for abuse, whether by companies that have not carried out any research and development or by advisors encouraging companies to push the boundaries of what expenditure is eligible to be claimed for under the schemes.35 HMRC estimates that the level of fraud and error on research and development relief was £469 million, or 4.9%. This is an increase from 3.6% in 2020–21, although HMRC believes this is due to improvements in its methodology rather than non-compliance worsening.36 HM Treasury has found UK companies claimed tax relief on £47.5 billion of research and development expenditure in 2019, but the Office for National Statistics estimated that businesses only carried out £25.9 billion of privately financed research and development in the UK.37 HMRC has recently published a joint paper with the Office for National Statistics that explains some of this disparity, but HMRC said that it is still working to resolve the remaining gap.38 Some of the gap can be explained by tax relief funding research and development costs incurred outside of the UK. We asked HMRC whether this was a legitimate use of the funding. HMRC said that the objective of the relief schemes was to fund research and development that benefits the UK economy, and that it has made some reforms to the small and medium enterprise scheme that better targets research and development undertaken in the UK.39
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Government response AI summary
The government disagrees with the recommendation, stating that HMRC has already published reports on the additional R&D expenditure stimulated by tax relief schemes and that further analysis will be carried out in the future but not within 12 months, although an update will be provided …
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HM Treasury