Recommendations & Conclusions
26 items
2
Recommendation
Forty-Ninth Report - Managing tax compl…
Accepted
HMRC does not expect to prosecute as many people for tax evasion as it did before the pandemic. HMRC prosecuted far fewer cases during the pandemic than before 2020. It has said publicly that no one will escape prosecution and that it has up to 20 years to follow up …
Government response. The government accepts the recommendation and commits to commencing new work in the 2023-24 financial year to understand the deterrent effect of criminal investigations resulting in prosecutions, with a target implementation date of June 2024.
HM Treasury
3
Conclusion
Forty-Ninth Report - Managing tax compl…
Not Addressed
Compliance yield fell during the pandemic, and HMRC does not know what level it should be targeting with its current resources. In the five years before the pandemic, HMRC collected on average around 5.2% of tax revenues through its compliance work. This fell significantly during the pandemic, initially to 5.0% …
Government response. The government response provided only states a different PAC conclusion (number 4) and does not contain a response to Recommendation 3 regarding compliance yield targets.
HM Treasury
4
Recommendation
Forty-Ninth Report - Managing tax compl…
Accepted
HMRC is not doing enough to help those who want to pay their taxes correctly. Taxpayers who want to pay their tax sometimes need help to get it right, and both the pandemic and the economic situation since have put pressure on people and businesses. Tax debt levels have risen …
Government response. The government accepts the recommendation, stating it provides flexible repayment practices and has secured new funding to improve the online Time to Pay service functionality. It also details that 500 additional debt management staff funded in 2022 are now in …
HM Treasury
5
Recommendation
Forty-Ninth Report - Managing tax compl…
Accepted
We are concerned that HMRC may be overstating the impact of its compliance work, and that it is overcharging some taxpayers. HMRC tests 400 of its completed compliance cases each year. In 2021–22, 80 of these cases had errors in the compliance yield recorded, which were skewed towards overstating yield. …
Government response. The government accepts the recommendation, committing to design a new sampling approach by June 2024 to develop statistically robust estimates of compliance yield error and the extent of taxpayer overcharging. They also clarify existing mechanisms for addressing overcharges, including complaints, …
HM Treasury
6
Conclusion
Forty-Ninth Report - Managing tax compl…
Not Addressed
There are signs that the tax gap may grow, and that HMRC does not have the operational resilience needed to deal with this. HMRC is funded to stop the tax gap from growing. The tax gap is an important measure of how much revenue may be missed—due to evasion, avoidance …
Government response. The government response provided addresses a recommendation to the Cabinet Office regarding contingency plans for the Shared Services Strategy, which is entirely unrelated to the committee's recommendation concerning HMRC's operational resilience and tax gap capacity.
HM Treasury
1
Conclusion
Forty-Ninth Report - Managing tax compl…
Not Addressed
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Revenue & Customs (HMRC) regarding the challenges to tackle non-compliance during and following on from the pandemic.1
Government response. The government acknowledges that the Committee took evidence from HM Revenue and Customs based on a report by the National Audit Office.
HM Treasury
7
Conclusion
Forty-Ninth Report - Managing tax compl…
Rejected
During the two pandemic years of 2020–21 and 2021–22, ‘compliance yield’ (the additional revenues protected as a result of HMRC’s interventions) per staff member fell from £1.3 million a year to £1.1 million (in 2021 prices).10 HMRC told us this was due to several factors, including the fact that staff …
Government response. The government disagrees with the committee's observation, stating that HMRC sets compliance yield targets to maintain a stable tax gap, deploys resources effectively, and that the tax compliance gap remained low during the pandemic years.
HM Treasury
8
Conclusion
Forty-Ninth Report - Managing tax compl…
Rejected
HMRC did not initially recruit at scale but has more recently recruited 4,800 new compliance staff, leading to 2,500 more FTE than in 2021–22. HMRC expects staff productivity to increase over the next few years, but told us that new staff take up to four years to be fully productive. …
Government response. The government explicitly disagrees with the committee's observation (interpreted as a recommendation), explaining that reduced yield during the pandemic was due to staff deployment to the Taxpayer Protection Taskforce. They assert that compliance performance should be viewed on a multi-year …
HM Treasury
9
Conclusion
Forty-Ninth Report - Managing tax compl…
Accepted
Over the two pandemic years, HMRC completed around 1,000 fewer prosecutions for tax-related offences than before the pandemic. In 2020–21 and 2021–22, it concluded just 163 and 236 prosecutions respectively, compared with around 700 a year in the two years before the pandemic.14 HMRC told us that court closures and …
Government response. The government agrees with the committee's observation, stating that tax crime prosecutions are expected to increase with a focus on high-harm cases and HMRC will commence new work in 2023-24 to understand the deterrent effect of its criminal investigations by …
HM Treasury
10
Conclusion
Forty-Ninth Report - Managing tax compl…
Accepted
However, HMRC also told us that it was already reducing numbers of prosecutions before the pandemic, and that is not planning on restoring the number of prosecutions to pre-pandemic levels, even with the backlog. Before the pandemic, the number of prosecutions had reduced from around 900 in 2017–18 to around …
Government response. The government agrees and states that tax crime prosecutions are expected to increase in future years, focusing on the highest-harm and most serious cases. HMRC will also commence new work in the 2023-24 financial year to understand the deterrent effect …
HM Treasury
11
Conclusion
Forty-Ninth Report - Managing tax compl…
Accepted
We asked whether such significant reductions in prosecutions risks weakening the deterrent effect of HMRC’s work, which could lead to greater levels of non-compliance. HMRC told us that while it wants to see serious tax crimes addressed in the most effective way, it is not seriously concerned that the reduction …
Government response. The government agrees with the committee's observation, stating that tax crime prosecutions are expected to increase and HMRC will commence new work in 2023-24 to understand the deterrent effect of its criminal investigations, with a target implementation date of June …
HM Treasury
12
Conclusion
Forty-Ninth Report - Managing tax compl…
Rejected
HMRC defines compliance yield as the additional revenue collected and protected that would have otherwise been lost to the Exchequer if not for HMRC’s interventions. It is the most direct measure of the impact of HMRC’s compliance work, and it covers both the broad effect of its measures to prevent …
Government response. The government disagrees with the recommendation, stating that HMRC sets compliance yield targets based on an agreed methodology with HM Treasury and the OBR, aimed at maintaining a stable tax gap and delivering revenues from fiscal event measures.
HM Treasury
13
Conclusion
Forty-Ninth Report - Managing tax compl…
Rejected
In the five years before the pandemic, HMRC collected or protected an average of 5.2% of tax revenues through its compliance work. In 2020–21, total tax revenues fell as a result of the pandemic, but compliance yield fell slightly further, dropping to 5.0% of total revenues. In 2021–22, total revenues …
Government response. The government disagrees with the committee's observation, stating that HMRC sets compliance yield targets to maintain a stable tax gap, deploys resources effectively, and that the tax compliance gap remained low in the pandemic years in line with pre-pandemic levels.
HM Treasury
14
Recommendation
Forty-Ninth Report - Managing tax compl…
Rejected
We asked HMRC whether, to catch up on compliance yield lost during the pandemic, it should expect to generate higher levels of yield than before the pandemic over the next few years. HMRC acknowledged that this should happen over time and suggested that no tax should go uncollected as a …
Government response. The government explicitly rejects the recommendation to target higher compliance yield, explaining that HMRC sets targets based on an agreed methodology with the Treasury and OBR to maintain a stable tax gap. HMRC prioritizes compliance risks, ensuring identified risks can …
HM Treasury
15
Conclusion
Forty-Ninth Report - Managing tax compl…
Accepted
HMRC told us that the pandemic created difficulties for taxpayers, and that the economic situation since has continued to put pressure on them.25 HMRC’s strategy in recent years has increasingly focused on preventing non-compliance occurring in the first place, including by helping taxpayers get their tax affairs right.26
Government response. The government will continue flexible repayment practices and enhance the online 'Time to Pay' service with Spring Budget 2023 funding. This aligns with HMRC's strategy to help taxpayers manage their affairs and prevent non-compliance, supported by additional staff and private …
HM Treasury
16
Conclusion
Forty-Ninth Report - Managing tax compl…
Accepted
Following our previous recommendations on HMRC’s debt management practices during and after the pandemic, HMRC has made changes to its approach aimed at supporting people and businesses to pay what they owe and recovering debts more quickly. This includes tailoring its approach to each taxpayer’s circumstances and ability to pay, …
Government response. The government agrees with the committee's welcomed observation, confirming that flexible repayment practices are in place, online Time to Pay services are being improved, 500 debt management staff have been recruited, and additional funds will be provided for private sector …
HM Treasury
17
Conclusion
Forty-Ninth Report - Managing tax compl…
Accepted
However, HMRC acknowledged that, despite these improvements, its initial expectation that debt levels would reduce has not been borne out in practice. This is because of ongoing economic pressures affecting taxpayers, particularly small businesses. Instead, debt levels have risen again – from £39.4 billion in April 2022 to £45.7 billion …
Government response. The government has secured Spring Budget 2023 funding for online 'Time to Pay' service improvements and Spring Statement 2022 funding for 500 additional debt management staff. An additional £20 million will be provided in 2023-24 and 2024-25 to utilize private …
HM Treasury
18
Conclusion
Forty-Ninth Report - Managing tax compl…
Accepted
HMRC can also support taxpayers through its customer service functions, by answering questions or otherwise providing helpful information in a timely way. However, its customer services have also been struggling with high call volumes, particularly at certain times of year such as the January deadline for filing self-assessment returns.29 We …
Government response. The government will continue to offer flexible repayment practices, improve the online 'Time to Pay' service with Spring Budget 2023 funding, and use £20 million in 2023-24 and 2024-25 for private debt collection agencies. These measures aim to enhance support …
HM Treasury
19
Conclusion
Forty-Ninth Report - Managing tax compl…
Accepted
HMRC’s compliance yield estimate is an important measure of the impact of its compliance work. A good understanding of this performance is essential for identifying whether HMRC has the overall resources it needs, as well as whether it is deploying these resources to where they are most effective.32
Government response. The government agrees with the importance of accurate yield measurement and will design a new sampling approach by June 2024 to allow for extrapolation of errors from TSAP reviews to the annual estimate of compliance yield. This will include considering …
HM Treasury
20
Conclusion
Forty-Ninth Report - Managing tax compl…
Accepted
HMRC’s quality assurance arrangements involve testing 400 of its completed compliance cases each year. In 2021–22, 80 of these cases had errors in the compliance yield that HMRC had recorded. These errors included both overstated and understated figures, and occurred for a range of reasons including data input mistakes, incorrect …
Government response. The government agrees and will design a new sampling approach by June 2024 to allow for extrapolation of errors from TSAP reviews to the annual estimate of compliance yield. This will help address issues identified in quality assurance and enable …
HM Treasury
21
Conclusion
Forty-Ninth Report - Managing tax compl…
Accepted
HMRC’s 2021–22 testing also found seven cases where taxpayers had been overcharged following the completion of a compliance enquiry, by a total of £32 million. Almost of all of this was a single large overcharge, which HMRC identified before any payment was taken.34 However, most of the smaller overcharges were …
Government response. The government agrees with the observation, stating existing controls are in place to ensure accurate tax positions, including quality assurance, appeal processes, and complaint mechanisms, with a commitment to pay interest on overpayments by March 2024.
HM Treasury
22
Conclusion
Forty-Ninth Report - Managing tax compl…
Accepted
HMRC does not know to what extent the errors identified are representative of compliance yield as a whole being overstated. HMRC also cannot estimate how many taxpayers it is overcharging following compliance enquiries, or by how much. HMRC explained that it designed its sampling process to examine quality in all …
Government response. The government accepts the recommendation and commits to designing a new sampling approach by June 2024 that allows for extrapolation of errors from reviewed cases to the annual compliance yield estimate. Once established, HMRC will develop a mechanism to estimate …
HM Treasury
23
Conclusion
Forty-Ninth Report - Managing tax compl…
Rejected
HMRC is funded to stop the tax gap from growing. The tax gap is an important measure of how much revenue may be missed—due to evasion, avoidance or non-payment —that could otherwise fund vital public services.38 32 C&AG’s Report, para 2.2, 2.14 33 Qq 57–58, 64–65; C&AG’s Report, para 2.12 …
Government response. The government disagrees with the committee's observation, asserting that HMRC's funding is sufficient to maintain compliance performance and a stable tax gap, with investments already made to tackle serious tax fraud and compliance risks.
HM Treasury
24
Conclusion
Forty-Ninth Report - Managing tax compl…
Rejected
Due to the way it is estimated, the tax gap does not yet reflect the full impact of the pandemic and will not do so for some time. HMRC’s latest estimate is that the tax gap remained stable in 2020–21, at 5.1% of taxes theoretically owed. However, HMRC’s tax gap …
Government response. The government disagrees with the committee's observation, stating that HMRC's funding levels are adequate, with a track record of investment in compliance to generate revenue and maintain a stable tax gap, as shown in the 2023 Measuring Tax Gaps publication.
HM Treasury
25
Recommendation
Forty-Ninth Report - Managing tax compl…
Rejected
Some measures that affect the tax gap have weakened since the start of the pandemic, indicating that the tax gap may grow in the coming years. Non-payment of taxes owed is one such component of the tax gap that HMRC expects will grow. Levels of debt and non-payment rose considerably …
Government response. The government rejects the committee's implication, asserting its commitment to ensure HMRC has sufficient funding to maintain compliance performance and tackle the tax gap. It highlights a £79 million investment in Autumn Statement 2022 for staff to combat tax fraud …
HM Treasury
26
Recommendation
Forty-Ninth Report - Managing tax compl…
Rejected
We asked whether HMRC needed more resources to catch up on the impact of the pandemic and to keep the tax gap from growing, and whether it was looking to recruit more. HMRC acknowledged that it will be more challenging to maintain the tax gap than it has been in …
Government response. The government rejects the committee's suggestion regarding resource sufficiency, affirming its commitment to provide HMRC with adequate funding. It cites a £79 million investment from Autumn Statement 2022 to hire staff targeting serious tax fraud and wealthy taxpayers, emphasizing its …
HM Treasury