Source · Select Committees · Public Accounts Committee
Recommendation 26
26
Rejected
HMRC faces resource challenges to maintain tax gap, as new staff require lengthy training.
Recommendation
We asked whether HMRC needed more resources to catch up on the impact of the pandemic and to keep the tax gap from growing, and whether it was looking to recruit more. HMRC acknowledged that it will be more challenging to maintain the tax gap than it has been in the recent past but did not indicate what contingency plans it had if its resources were insufficient.43 HMRC told us that it will be gradually reintegrating staff from COVID-19 work to tax compliance between April and September 2023.44 It also told us that it has recruited 4,800 staff to its compliance group in the past two years. However, it takes up to four years for new staff to be fully trained and to gain enough experience to be fully effective, due to the complex nature of tax legislation and investigations which require skills ranging from technical tax knowledge to project management.45 HMRC also argued that it has up to 20 years to pursue cases of suspected non-compliance during the pandemic. However, this only applies to cases of suspected fraud. For errors the period is less, and in some cases HMRC cannot go back more than four years.46 39 Qq 82–83, 93–95 40 Qq 35–36, 41, 81, 84 41 Qq 35, 85; C&AG’s Report, para 12 42 C&AG’s Report, para 18 43 Qq 44, 85–87 44 Q 43 45 Qq 44, 80; MFP0001 46 Qq 25, 85–87 14 Managing tax compliance following the pandemic
Government Response Summary
The government rejects the committee's suggestion regarding resource sufficiency, affirming its commitment to provide HMRC with adequate funding. It cites a £79 million investment from Autumn Statement 2022 to hire staff targeting serious tax fraud and wealthy taxpayers, emphasizing its strategic approach to deploying resources.
Government Response
Rejected
HM Government
Rejected
6.1 The government disagrees with the Committee’s recommendation. 6.2 HMRC’s funding levels are a decision for Treasury ministers based on advice from HMRC and HMT officials. The government remains committed to ensuring HMRC has sufficient funding to enable it to maintain its compliance performance over time, while continuing to make efficiencies, both in this and future Spending Review periods. The government also has a track record of investing additional funds in HMRC’s compliance work to generate additional revenue. For example, at Autumn Statement 2022 the government announced a further £79 million over the next five years to enable HMRC to allocate additional staff to tackle more cases of serious tax fraud and address tax compliance risks among wealthy taxpayers. This investment is forecast to bring in £725 million of additional tax revenues over the next five years. 6.3 HMRC published the 2023 edition of Measuring Tax Gaps on 22 June 2023, which shows that the tax compliance gap has fallen from 7.5% in 2005-06 to a low of 4.8% in 2020-21 and has remained low and broadly stable since 2017-18. 6.4 The government disagrees with the Committee’s recommendation. 6.5 The government did not set performance targets for HMRC during the pandemic (2020-21 and 2021-22). Some of the reduction in yield over the pandemic period is due to the deployment of experienced staff to the Taxpayer Protection Taskforce (TPT) to recover grants that were incorrectly claimed under the COVID-19 support schemes. The backfilling of these posts with new recruits means that the opportunity cost of that deployment will be mitigated – but over a longer time period as it takes time for new recruits to be trained. Over the COVID-19 pandemic period the closure of some large cases has been delayed but this yield will be recovered in future years. Much of this is part of the normal variation of HMRC’s compliance work from one year to the next. Compliance yield performance and the tax compliance gap should always be considered on a multi-year basis. 6.6 In any year, HMRC decides how best to deploy compliance resources against compliance risks in order to deliver the best outcomes. Compliance risks that were 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.