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% …
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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% in 2020–21 and then 4.2% in 2021–22. This drop equates to a £9 billion reduction in compliance yield over the two years, compared with previous performance. HMRC maintains that no tax will go uncollected as a result of the pandemic. However, it would not be drawn on the future level of compliance yield it can generate beyond the current year’s target of £36 billion, citing uncertainty in the economy and 6 Managing tax compliance following the pandemic inflationary pressures. We are concerned that any compliance yield projections or targets it expresses in cash terms will not be sufficiently stretching during a period of high inflation. HMRC will need compliance yield to exceed 5.2% of tax revenues over the next few years to demonstrate it has caught up with the impact of the pandemic. Recommendation 3: HMRC should set a clear target of the compliance yield required to make up the shortfall during the pandemic, and specify a rolling target for compliance yield as a percentage of tax revenues.
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Government response AI summary
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.
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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 …
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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 or non-payment—that could otherwise fund vital public services. 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 was stable in 2020–21, but HMRC says that this has a much larger range of uncertainty than normal and may need to be revised as it gets more data. There is a significant risk that the tax gap will grow, in light of compliance yield dropping and levels of debt and non-payment rising. HMRC’s own planning estimates indicate that it is unlikely to generate enough compliance yield to stop the tax gap from growing in the next few years. However, it does not have a contingency plan if this happens. Since it takes four years to get compliance staff fully trained and up to speed, there could be a long lag if HMRC waits to determine whether it needs more resources. HMRC has up to 20 years to pursue cases of suspected non- compliance, but this only applies to fraud cases. For errors the period is less, and in some cases HMRC cannot go back more than four years. Recommendation 6: a) HMRC needs to build in more resilience to the tax system, with the tax gap at risk of growing and high returns available from compliance work there is a strong value for money case for increasing resources. b) At a minimum, HMRC should specify a contingency plan for bringing in additional compliance capacity to ensure increased levels of non- compliance can be tackled quickly, and before the window closes for investigating cases it did not pursue during the pandemic. 8 Managing tax compliance following the pandemic 1 Impact of the pandemic on tax compliance
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Government response AI summary
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.
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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 AI summary
The government acknowledges that the Committee took evidence from HM Revenue and Customs based on a report by the National Audit Office.
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HM Treasury