Recommendations & Conclusions
14 items
2
Recommendation
9th Report - Tax evasion in the retail …
Accepted
Despite significant lost revenue, HMRC does not have a clear objective or strategy to tackle tax evasion. Rather than a separate strategy to tackle tax evasion, HMRC has an overall compliance strategy which it applies to errors and carelessness as well as to deliberate and wilful non–compliance such as evasion. …
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Despite significant lost revenue, HMRC does not have a clear objective or strategy to tackle tax evasion. Rather than a separate strategy to tackle tax evasion, HMRC has an overall compliance strategy which it applies to errors and carelessness as well as to deliberate and wilful non–compliance such as evasion. But these behaviours are very different and therefore require different approaches on the part of HMRC if it is to tackle them. HMRC says it is looking at whether evasion requires its own strategy. Previously HMRC was funded to prevent the tax gap from increasing, although after receiving significant investment at Autumn Budget 2024 it now aims to reduce the overall tax gap, of which evasion is one element, and raise an additional £6.5 billion a year of tax revenue by 2029–30. However, HMRC does not have a specific target to reduce annual losses due to evasion or other forms of deliberate non–compliance. HMRC say that no tax evasion is acceptable. Given this low tolerance for evasion, it is concerning that HMRC has not articulated a goal to reduce it. recommendation a. In its Treasury Minute response, HMRC should set out clearly what its aims are for tackling deliberate non–compliance, including tax evasion, and by how much it is seeking to reduce this by the end of this Parliament. b. HMRC should establish a clear strategy for tackling tax evasion and deliberate non–compliance, in which it makes clear its future ambitions with specific, measurable and timetabled objectives. In doing this, HMRC should consider including how it plans to make use of its existing enforcement tools and introduce clear goals for how it will prosecute tax evaders.
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Government response AI summary
The government agrees and will set out its approach for tackling deliberate non-compliance, including tax evasion, by March 2026. This approach will follow the 'Prevent, Promote, Respond' strategy, detailing measures to support businesses and tackle non-compliance, building on existing investigation work.
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HM Treasury
3
Conclusion
9th Report - Tax evasion in the retail …
Accepted
HMRC, Companies House and the Insolvency Service have failed to work collaboratively, missing opportunities to increase the tax take. Due to the fraudulent use of UK company registrations, contrived insolvencies and phoenixism to evade tax, HMRC, Companies House and the Insolvency Service must work closely to tackle these threats together. …
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HMRC, Companies House and the Insolvency Service have failed to work collaboratively, missing opportunities to increase the tax take. Due to the fraudulent use of UK company registrations, contrived insolvencies and phoenixism to evade tax, HMRC, Companies House and the Insolvency Service must work closely to tackle these threats together. The introduction of ECCTA presents opportunities for all three organisations to work more closely. At Autumn Budget 2024 the government announced it would increase collaboration between HMRC, Companies House and the Insolvency Service to tackle phoenixism. The organisations say they will be developing a joint plan for closer working over the next financial year. Companies House and HMRC are discussing closer integration of systems to tighten registration requirements, including a joint registration service, but they estimate this will take between five to ten years to implement. This is too long whilst major gaps remain in checks for both company and VAT registrations. Whilst it is encouraging that all three organisations are 4 committed to joint working and agree there are significant benefits to be had, we are disappointed that it is taking so long for this to happen. Delays in implementation decrease the additional revenue available. recommendation HMRC, Companies House and the Insolvency Service should develop a plan for more effective joint working and write to the Committee within six months with further details. This should include: a. clear roles and responsibilities for tackling fraudulent registrations, corporate abuse and contrived insolvencies; b. clear objectives on tackling these threats; c. an assessment of how local and shared controls can be strengthened between them and operated most cost–effectively; and d. a more ambitious timeframe for introducing a joint registration process, given there is significant benefit to this.
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Government response AI summary
The government agrees and states that HMRC, Companies House, and the Insolvency Service have developed a joint programme for closer cooperation, including implementing consistent identity verification, fully tagged financial accounts, an enhanced data sharing framework, and changes to tackle rogue directors. A joint consultation on …
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HM Treasury
4
Conclusion
9th Report - Tax evasion in the retail …
Accepted
The planned reforms to the role of Companies House leave huge gaps and it is still too easy to register companies fraudulently. The Economic Crime and Corporate Transparency Act 2023 introduces significant changes to the role of Companies House, including new powers to remove inaccurate information from the company register …
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The planned reforms to the role of Companies House leave huge gaps and it is still too easy to register companies fraudulently. The Economic Crime and Corporate Transparency Act 2023 introduces significant changes to the role of Companies House, including new powers to remove inaccurate information from the company register and share data with other government bodies. Prior to the Act, Companies House had limited powers to check the validity of information provided to it, meaning it was easy for fraudsters to set up legitimate UK companies for illegitimate means. Companies House’s data show that company incorporations in the UK between 2021 and 2022 greatly exceed those in other countries. Companies House is using its new powers to clean up the register, having removed 50,000 registered office addresses from the register so far. However, Companies House says the reforms will not be fully operational until March
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Government response AI summary
The government agrees and highlights actions already taken since March 2024, including removing over 73,400 inappropriate addresses and rejecting 7,000 new incorporations. It commits to continuing the rollout of ECCTA reforms, including identity verification, and will report on progress to the Committee in November 2025.
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HM Treasury
5
Conclusion
9th Report - Tax evasion in the retail …
Accepted
HMRC’s VAT registrations processes are far too open to abuse, and it is not exploring options to tighten controls sufficiently. Checking whether businesses are genuinely UK established is important for VAT because online marketplaces are liable for VAT from overseas businesses selling on their platforms but not for UK established …
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HMRC’s VAT registrations processes are far too open to abuse, and it is not exploring options to tighten controls sufficiently. Checking whether businesses are genuinely UK established is important for VAT because online marketplaces are liable for VAT from overseas businesses selling on their platforms but not for UK established businesses. HMRC does not routinely check addresses when businesses register for VAT, but says it has confidence that its risk–based checks, combined with due diligence rules for online marketplaces, are working well. Despite this, HMRC seems unable to stop businesses registering for VAT using incorrect addresses, illustrated by the case of an individual in Cardiff who continues to receive letters seeking unpaid tax from HMRC addressed to overseas companies incorrectly registered at his residential address – despite this Committee pressing the issue for over a year. Moreover, HMRC does not appear to be actively exploring options used internationally to tighten wider controls around VAT. Notably, while it recognises transaction–based reporting would give it access to more data to manage compliance risks, it has not carried out any analysis to assess whether it would be good value for money. recommendation a. HMRC should strengthen its VAT registration controls, including by checking more addresses and stopping demands for unpaid tax going to innocent citizens who are unconnected with companies using their addresses, and working with online marketplaces to share information and intelligence effectively. It should write to the Committee in six months to explain how it has done this. b. HMRC should, in its Treasury Minute response, set out its plans to explore the costs and benefits of transaction–based reporting and other controls used in other countries.
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Government response AI summary
The government agrees and states that HMRC will explore additional controls and emerging technologies to reduce tax evasion, including real-time transaction reporting. A joint consultation on promoting e-invoicing and real-time transaction reporting was published in February 2025, with findings to inform future policy.
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HM Treasury
6
Conclusion
9th Report - Tax evasion in the retail …
Accepted
HMRC and the Insolvency Service are not tackling tax evaders or rogue directors sufficiently, particularly for phoenixism. The number of prosecutions resulting from HMRC’s criminal investigations reduced from 749 in 2018–19 to 344 in 2023–24. The previous Public Accounts Committee has raised concerns about fewer prosecutions meaning there is less …
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HMRC and the Insolvency Service are not tackling tax evaders or rogue directors sufficiently, particularly for phoenixism. The number of prosecutions resulting from HMRC’s criminal investigations reduced from 749 in 2018–19 to 344 in 2023–24. The previous Public Accounts Committee has raised concerns about fewer prosecutions meaning there is less of a deterrent effect for those inclined to evade tax. We are encouraged that 6 HMRC says it wants to increase the number of prosecutions resulting from its work, and that it has increased the number of positive charging decisions it has recommended to the Crown Prosecution Service. However, we are concerned that HMRC has not issued any penalties under powers to tackle suppliers of sales suppression software it gained in 2022. The Insolvency Service disqualified just 7 directors for phoenixism between 2018–19 and 2023–24. In total it has disqualified 6,274 directors in that time. Both figures are far too low given estimates of the number of fraudulent company registrations (5% to 20% of all company registrations) and the estimated cost to the Exchequer of contrived insolvency (£500 million a year). The Insolvency Service says it has disqualified directors who carried out phoenixism for more severe offences, and it has doubled the average length of disqualification to 10 years. It says it wants to go further both in volume and increasing publicity, particularly around phoenixism, but has not committed to any targets or forecasts. recommendation HMRC and the Insolvency Service should write to the Committee within six months with a plan to bear down on tax evaders and rogue directors who flout insolvency rules. This plan should include details of: a. how both organisations will increase prosecutions and disqualifications; b. how they will better publicise cases of successful prosecutions and disqualifications; and c. how they will report on their performance and ensure they are measuring the deterrent effect of their responsiv
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Government response AI summary
The government agrees and confirms that HMRC, Companies House, and the Insolvency Service have agreed a joint implementation plan to tackle rogue directors and phoenixism, including developing a shared definition and specific measures to close vulnerabilities and increase investigations. The government will write to the …
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HM Treasury
1
Conclusion
9th Report - Tax evasion in the retail …
Accepted
On the basis of a report by the Comptroller and Auditor General, we took evidence from HMRC, Companies House and the Insolvency Service on their approach to tackling tax evasion in the retail sector.1
Government response AI summary
The government agrees and states that HMRC, Companies House, and the Insolvency Service will establish a framework for sharing threat assessments, data, and intelligence to improve understanding of corporate fraud. HMRC plans to lay out its plans by September 2025 and complete a tax gap …
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HM Treasury
9
Recommendation
9th Report - Tax evasion in the retail …
Accepted
Companies House said that, prior to the introduction of the Economic Crime and Corporate Transparency Act (ECCTA), it estimated that 5% of UK registered companies were fraudulent. It explained that external commentators had estimated the figure could be as high as 20%, and that the true value likely lies somewhere …
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Companies House said that, prior to the introduction of the Economic Crime and Corporate Transparency Act (ECCTA), it estimated that 5% of UK registered companies were fraudulent. It explained that external commentators had estimated the figure could be as high as 20%, and that the true value likely lies somewhere in between.19 HMRC told us that individuals getting on the company register who should not be there, or with the incorrect classification, creates a tax risk.20 In its Strategic Intelligence Assessment, published October 2024, Companies House states that UK limited companies are used in VAT fraud.21 Companies House said it did not know how fraud on the company register translates into tax losses, and HMRC said that its estimate of the tax gap does not tie back to registrations in Companies House.22 HMRC’s strategic approach
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Government response AI summary
HMRC, Companies House, and Insolvency Service will establish a framework for sharing threat assessments, data and intelligence to improve collective understanding of risks, corporate fraud and any tax gap implications, laying out plans by September 2025 and completing an assessment of potential impacts on the …
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HM Treasury
14
Conclusion
9th Report - Tax evasion in the retail …
Accepted
Prior to the introduction of ECCTA in March 2024, Companies House had limited scope to share data or insight with other public bodies such as HMRC. The new measures under ECCTA include the ability to proactively share information with other government departments and law enforcement agencies36. Although Companies House and …
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Prior to the introduction of ECCTA in March 2024, Companies House had limited scope to share data or insight with other public bodies such as HMRC. The new measures under ECCTA include the ability to proactively share information with other government departments and law enforcement agencies36. Although Companies House and HMRC said they had been working closely for many years, the organisations told us they are now able to share intelligence with each other with no barriers.37 Companies House told us that since the introduction of ECCTA, it has shared 420 intelligence assessments with law enforcement and other government departments, such as HMRC and the Insolvency Service.38 HMRC told us it welcomes ECCTA and that it is working with Companies House to support its implementation. It also said that ECCTA will help it with tax compliance.39
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Government response AI summary
The government agrees with the committee's recommendation and states that HMRC, Companies House and the Insolvency Service have strong relations, and will implement consistent identity verification and authentication, share risk intelligence, and changes to penalise rogue directors, with an implementation target date of November 2025.
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HM Treasury
18
Recommendation
9th Report - Tax evasion in the retail …
Accepted
In March 2024, the first measures of ECCTA came into force. ECCTA introduces significant changes to the role of Companies House which are intended to improve the reliability of the information on the company register and reduce the risk of false registrations. These measures included new powers to check information …
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In March 2024, the first measures of ECCTA came into force. ECCTA introduces significant changes to the role of Companies House which are intended to improve the reliability of the information on the company register and reduce the risk of false registrations. These measures included new powers to check information for company registrations, remove inaccurate information and share information with other government departments and law enforcement agencies.51 Companies House told us it has taken action using its new powers, so far removing 50,000 office addresses from the register, referring 3,000 companies per week for strike– off, and removing other fraudulent information collectively affecting 63,700 companies.52 48 C&AG’s Report, para 2.8 49 TERS0002 50 Companies House strategic intelligence assessment – GOV.UK 51 C&AG’s Report, para 2.9 52 Q 53 14
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Government response AI summary
The government agrees to explore options to improve the authenticity and integrity of company address information on the register and will report progress in November 2025, and notes that Companies House has already removed over 73,400 addresses and rejected 7,000 new incorporations with inappropriate addresses.
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HM Treasury
21
Recommendation
9th Report - Tax evasion in the retail …
Accepted
The government introduced a legislative change in January 2021 to tackle tax non–compliance through online marketplaces. This removed responsibility for accounting for the VAT on sales from overseas retailers, and instead made the online marketplaces liable for the VAT.61 Overseas sellers can evade VAT by falsely presenting themselves as UK …
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The government introduced a legislative change in January 2021 to tackle tax non–compliance through online marketplaces. This removed responsibility for accounting for the VAT on sales from overseas retailers, and instead made the online marketplaces liable for the VAT.61 Overseas sellers can evade VAT by falsely presenting themselves as UK established for VAT purposes.62 Online marketplaces need to determine the correct 53 C&AG’s Report, para 2.9 54 Q 41 55 Q 41 56 Q 59 57 C&AG’s Report, para 2.18 58 Q 60 59 Qq 61–62 60 Q 65 61 C&AG’s Report, para 2.6 62 C&AG’s Report, para 2.14 15 liability or demonstrate they have taken reasonable steps to do so, including whether sellers are UK–established.63 HMRC told us it is for the online marketplaces to do the majority of the work verifying the establishment of businesses selling through their platforms, but it does some enforcement work in this area. It also said it is actively supporting online marketplaces including by developing new guidance for them which will be available in early 2025.64
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Government response AI summary
HMRC will strengthen controls through enhanced address validation within the VAT registration service by April 2026, and will write to the Committee to update progress in 6 months, with a final summary by April 2026.
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HM Treasury
22
Conclusion
9th Report - Tax evasion in the retail …
Accepted
When businesses register for VAT, HMRC does not verify whether they are UK–established in most cases.65 HMRC explained all VAT registrations are risk assessed and that just over 50% of VAT registrations require further checks which can, but do not routinely, include address validation.66 HMRC told us that is has …
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When businesses register for VAT, HMRC does not verify whether they are UK–established in most cases.65 HMRC explained all VAT registrations are risk assessed and that just over 50% of VAT registrations require further checks which can, but do not routinely, include address validation.66 HMRC told us that is has confidence that its VAT register, combined with due diligence rules for online marketplaces, are working well, although it acknowledged that overseas retailers selling through online marketplaces was a compliance risk which it must constantly monitor.67
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Government response AI summary
The government agrees with the recommendation to strengthen controls on VAT registrations and will conduct a feasibility study to explore options for enhanced address validation within the VAT registration service, with implementation targeted for April 2026.
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HM Treasury
23
Conclusion
9th Report - Tax evasion in the retail …
Accepted
Over a six–month period in September 2022, a large number of VAT– registered overseas businesses changed their registered address to one residential property in Cardiff. The resident received more than 11,000 letters from HMRC and debt collection agencies regarding unpaid VAT.68 The previous Public Accounts Committee raised this issue on …
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Over a six–month period in September 2022, a large number of VAT– registered overseas businesses changed their registered address to one residential property in Cardiff. The resident received more than 11,000 letters from HMRC and debt collection agencies regarding unpaid VAT.68 The previous Public Accounts Committee raised this issue on several occasions in the past but the taxpayer continued to receive letters, including demands for payments.69 This Committee is aware of letters sent to the resident’s address as recently as October 2024 with demands from HMRC for unpaid VAT and import duties. We raised this with HMRC, and it told us that it had previously put overrides in place to prevent automated correspondence going to the address, but the most recent letters involved manual processes within HMRC. HMRC told us that it will seek to educate its officials to not issue letters to the address, and it is investigating each time a letter is sent to the address.70
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Government response AI summary
The government agrees with the recommendation to strengthen controls on VAT registrations and will conduct a feasibility study to explore options for enhanced address validation within the VAT registration service, with implementation targeted for April 2026.
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HM Treasury
25
Conclusion
9th Report - Tax evasion in the retail …
Accepted
In correspondence after our evidence session HMRC said that in 2023–24 it had launched 430 new criminal investigations and more than 10,200 civil investigations into suspected fraud, and had charged around 17,000 penalties for deliberate non–compliance.74 However, the number of prosecutions resulting from HMRC’s criminal investigations reduced from 749 in …
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In correspondence after our evidence session HMRC said that in 2023–24 it had launched 430 new criminal investigations and more than 10,200 civil investigations into suspected fraud, and had charged around 17,000 penalties for deliberate non–compliance.74 However, the number of prosecutions resulting from HMRC’s criminal investigations reduced from 749 in 2018–19 to 344 in 2023–24.75 In May 2023, the previous Public Accounts Committee raised concerns that fewer prosecutions could weaken the deterrent effect of HMRC’s compliance work.76 HMRC told us it wants to increase the volume of prosecutions resulting from its work.77 It said that it has increased the size of its fraud investigation service from 4,400 people in 2018–19 to 4,800 now, and wants to further increase it to 5,400 by 2029–30. HMRC told us it expects this to result in an increase in the volume of its criminal investigations and resulting prosecutions.78 HMRC also told us that it has increased the number of positive charging decisions it has recommended to the Crown Prosecution Service.79
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Government response AI summary
The government agrees with the recommendation that HMRC and the Insolvency Service should create a plan to tackle tax evaders and rogue directors, and will write to the committee within six months to set out this plan with an implementation target date of Autumn 2025.
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HM Treasury
27
Recommendation
9th Report - Tax evasion in the retail …
Accepted
The Insolvency Service disqualified 6,274 directors over the period 2018–19 to 2023–24, but only seven of these were for phoenixism.83 HMRC estimates that phoenixism accounted for 15% of its tax debt losses in 2022–23, which equates to at least £500 million.84 The Insolvency Service told us that it is not …
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The Insolvency Service disqualified 6,274 directors over the period 2018–19 to 2023–24, but only seven of these were for phoenixism.83 HMRC estimates that phoenixism accounted for 15% of its tax debt losses in 2022–23, which equates to at least £500 million.84 The Insolvency Service told us that it is not difficult for it to disqualify directors where it finds evidence of unfitness. It explained that there is no statutory offence for phoenixism, but it can be an aggregating factor in its determination of the seriousness of director misconduct.85 The Service explained that the seven disqualifications are cases where there was no more serious offence for it to pursue other than phoenixism.86 The Insolvency Service told us that the low number of disqualifications for purely phoenixism is not a good indication of the work it does in relation to protecting tax revenue, and said that it has increased the number of disqualifications last year by 30% from the previous year, as well as doubling the average length of disqualification to around 10 years.87 The Insolvency Service could not tell us definitively how much of its casework involves phoenixism, but estimated around 10%.88 It told us that it wants to increase its disqualification activity, and go further in publicising high– profile cases, but it could not put a figure on what a good response would look like.89 81 Qq 87 – 88 82 Q 89 83 C&AG’s Report, para 21 84 C&AG’s Report, para 1.12 85 Q 80 86 Q 84 87 Q 80 88 Q 81 89 Qq 82–83, Q86 18
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Government response AI summary
HMRC and the Insolvency Service will write to the Committee within six months with a plan to bear down on tax evaders and rogue directors who flout insolvency rules including developing a shared definition of phoenixism.
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HM Treasury