Recommendations & Conclusions
14 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 …
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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 on cases of fraud. However, it also said it would not prosecute as many people as before the pandemic, despite a reduction of around 1,000 cases during the two pandemic years. HMRC says its strategy is to prosecute the most serious forms of evasion and criminal activity, and that it focuses on high- value and high-profile cases rather than large volumes of smaller cases. However, we are concerned that, without sufficient numbers of prosecutions, HMRC cannot demonstrate a credible deterrent effect. We have previously recommended that HMRC should measure the deterrent effect of its work, but it concluded that it could not do so. Recommendation 2: HMRC should develop a better understanding of the deterrent effect of its compliance work, for example by monitoring the future revenue benefit of prosecutions compared to those it decides not to prosecute. It should utilise the expertise of academics, if necessary, for example using the HMRC Datalab.
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Government response AI summary
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.
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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 …
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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 again—from £39.4 billion in April 2022 to £45.7 billion in November 2022—rather than decrease as HMRC initially expected. HMRC has made changes to its debt management practices, including tailoring its approach to each taxpayer’s circumstances and ability to pay, and informing this with new data from credit reference agencies. It has improved its productivity at recovering overdue debts, which we welcome. However, this has still not been enough to stop debt levels rising due to the number of people finding it difficult to pay. HMRC’s customer services are also struggling with high call volumes, particularly at certain times of year, meaning those who need help to get their tax affairs right cannot always get support. Taxpayers who want to put their affairs right can find it hard to do so due to inflexible repayment practices and confusing correspondence from HMRC. Recommendation 4: HMRC should ensure it is providing sufficient support to taxpayers, big and small, who want to pay their tax. It should look at whether the additional staff it has secured for debt recovery work are sufficient, given it is struggling to keep up with demand even with better productivity.
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Government response AI summary
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 place and £20 million has …
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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. …
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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. HMRC’s testing also found seven cases where it had overcharged the taxpayers by a total of £32 million. HMRC says that it has controls in place to prevent over-recording of yield but acknowledges that it 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. It says that there has been a slight improvement in the quality of its casework in the past year but acknowledges that the number of overcharges identified in its sample testing is too high. HMRC has agreed to update its testing approach so that it can better estimate the extent of errors it makes. Recommendation 5: a) HMRC should develop statistically robust estimates of the level of error in its compliance yield measure, and how far taxpayers are overcharged. Managing tax compliance following the pandemic 7 b) HMRC should demonstrate it has taken all proportionate steps to identify and correct overcharges. It should make clear what compensation is available if taxpayers are overcharged.
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Government response AI summary
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, reviews, reimbursement of costs, and …
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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 …
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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 reduced court capacity during the pandemic affected the extent to which it could progress prosecutions through the courts, which therefore constrained the numbers it could complete.15
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Government response AI summary
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 June 2024.
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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 …
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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 700 in each of 2018–19 and 2019–20. HMRC told us this was because it considered that its criminal prosecution powers were best used to tackle the most serious and complex cases, rather than large volumes of smaller cases.16
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Government response AI summary
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 of its criminal investigations by …
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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 …
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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 might weaken the deterrent effect. It argued that the publicity around high-profile convictions, as well as its use of other enforcement tools such as civil powers, is sufficient to maintain a credible deterrent.17 However, it does not have a way to monitor this. This Committee has previously recommended that HMRC should measure the deterrent effect of its work, but it concluded 9 Q 46; C&AG’s Report, para 9 10 C&AG’s Report, para 19 11 Q 46 12 Q 80; C&AG’s Report, para 1.10 13 Qq 44, 80; C&AG’s Report, para 19 14 Q 47; C&AG’s Report, para 16 15 Qq 48–52 16 Qq 53–54; C&AG’s Report, para 16 17 Qq 47, 55 10 Managing tax compliance following the pandemic that it could not do so.18 There may be scope for HMRC to make more use of the expertise of academics, for example using its Datalab which provides trusted researchers with secure access to anonymised data.19 Compliance yield
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Government response AI summary
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 2024.
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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
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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
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Government response AI summary
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 debt collection agency funding.
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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, …
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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, and informing this with new data from credit reference agencies. HMRC has also added 500 staff to its debt management service. It told us that these efforts have improved its productivity at recovering overdue debts and that it has made strong progress to settle the tax debts amassed during the pandemic, which we welcome.27
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Government response AI summary
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 debt collection.
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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 …
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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 in November 2022.28
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Government response AI summary
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 sector debt collection agencies to …
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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 …
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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 have previously reported on a deterioration in service levels in the past few years.30 If people cannot contact HMRC when they need to, then some of those who need help to get their tax affairs right will not always be able to get support. We have also heard examples of people who want to put their affairs right but find it hard to do so because of HMRC’s approach. Examples have included inflexible repayment practices and confusing correspondence.31 25 Qq 35–36, 40, 84 26 C&AG’s Report, para 5 27 Qq 37–41, 44; Letter from Jim Harra, 24 January 2023 28 Q 41; Letter from Jim Harra, 24 January 2023 29 Q 103 30 Committee of Public Accounts, HMRC performance in 2021–22, Thirty-Third Report of Session 2022–23, HC 686, 11 January 2023 31 Qq 79, 102–103 12 Managing tax compliance following the pandemic Understanding the impact of HMRC’s compliance work
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Government response AI summary
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 for taxpayers struggling with tax …
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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
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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
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Government response AI summary
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 options like aligning sampling to …
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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 …
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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 calculations, or incorrect decisions on what should or should not be included. However, they were skewed towards overstating compliance yield. Out of £736 million of yield that was tested, the net effect of the errors was to overstate compliance yield by £59.7 million (8%).33
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Government response AI summary
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 estimation of official error impact …
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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 …
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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 for individuals or small businesses, who might therefore have struggled to pay had HMRC not identified the error and corrected the position.35 HMRC told us that it has controls in place to prevent over-recording of yield, and that its testing has found a slight improvement in the quality of its casework in the past year. However, it acknowledged that the seven overcharges it identified was too many.36
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Government response AI summary
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.
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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 …
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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 areas of its casework, rather than to provide assurance on the overall estimate. Its approach means it cannot accurately extrapolate the errors or overcharges it finds to produce an overall estimate of their impact. HMRC told us it expects compliance yield to be materially correct but it cannot provide assurance that this is the case. Errors should be rare, and finding a lot of them in a sample may indicate a bigger problem that merits further testing. HMRC told us that it is reviewing how it can update its testing approach so that it can better estimate the extent of errors it makes, based on suggestions from the National Audit Office.37 Stopping the tax gap from growing
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Government response AI summary
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 the impact of official error …
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HM Treasury