Recommendation 3

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.