Source · Select Committees · Public Accounts Committee
Recommendation 13
13
Rejected
HMRC's compliance yield significantly declined post-pandemic, representing a £9 billion reduction.
Conclusion
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 rose by 20% to record levels following the reopening of the economy and other factors such as higher inflation. However, compliance yield did not recover at the same pace, dropping to 4.2% of total revenues. This drop equates to a £9 billion reduction in compliance yield over the two years, compared with previous performance.21 HMRC told us that this partly reflected the economic impacts of the pandemic, and that there was less yield to be had. However, it also acknowledged that the reduction was affected by reductions in its own work, and a reduced ability of taxpayers to engage with its enquiries.22
Government Response Summary
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.
Government Response
Rejected
HM Government
Rejected
3.1 The government disagrees with the Committee’s recommendation. 3.2 In accordance with an agreed methodology between HMRC, HM Treasury (HMT) and Office for Budget Responsibility (OBR), HMRC sets compliance yield targets at a level that meets the OBR expectation for maintaining a stable tax gap and delivering additional revenues from fiscal event measures. In turn, the OBR’s fiscal forecasts assume that HMRC’s baseline compliance work maintains the tax gap at a stable level. 3.3 In any year, HMRC will decide how best to deploy its compliance resources against compliance risks in order to deliver the best outcomes. Compliance risks that were identified but not addressed during the COVID-19 pandemic period can still be acted on. HMRC constantly assesses the full range of risks that are present, both new and historical, when deciding how best to deploy its resources. Where the planning work indicates it is suitable to do so, HMRC will work newer, higher priority or higher value risks instead of acting on older risks. 3.4 The resource available for HMRC and its compliance work is agreed with ministers at spending reviews and fiscal events. The agreed level is shaped by economic factors and enables HMRC to carry out the compliance activity required to maintain a stable tax gap over the medium term. 3.5 HMRC published the 2023 edition of Measuring Tax Gaps on 22 June 2023, which shows that the tax compliance gap remained low in the pandemic years, 2020-21 and 2021-22, in line with pre-pandemic years.