Source · Select Committees · Public Accounts Committee
Recommendation 14
14
Rejected
HMRC unable to set clear compliance yield targets for pandemic recovery efforts.
Recommendation
We asked HMRC whether, to catch up on compliance yield lost during the pandemic, it should expect to generate higher levels of yield than before the pandemic over the next few years. HMRC acknowledged that this should happen over time and suggested that no tax should go uncollected as a result of the pandemic because it can go back up to 20 years with its compliance enquiries. However, it told us that other risks of non-compliance may take priority. There are also timing issues between when taxes are owed and when HMRC records compliance yield, meaning the full impact of the pandemic will not be known for several years.23 HMRC would therefore not be drawn on what levels of compliance yield it should target in the coming years, either as a percentage of total revenues or in cash terms, beyond aiming for £36 billion in the current year. It told us this was due to uncertainty in the economy and inflationary pressures.24 18 Treasury Minutes, Government responses on the Thirty Fourth to the Thirty Sixth; the Thirty Eighth; and the Fortieth to the Forty Second reports from the Committee of Public Accounts: Session 2015–16, Cm 9323, July 2016 19 https://www.gov.uk/government/publications/hmrc-datalab 20 C&AG’s Report, para 2.2–2.3 21 Qq 35, 85; C&AG’s Report, para 11–12 22 Qq 35, 45–46, 85 23 Qq 85–86, 88; C&AG’s Report, para 2.8–2.9 24 Qq 89–95 Managing tax compliance following the pandemic 11 2 Understanding how to catch up following the pandemic Supporting taxpayers who want to pay their taxes correctly
Government Response Summary
The government explicitly rejects the recommendation to target higher compliance yield, explaining that HMRC sets targets based on an agreed methodology with the Treasury and OBR to maintain a stable tax gap. HMRC prioritizes compliance risks, ensuring identified risks can still be addressed.
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.