Recommendation 3

HMRC does not have a convincing plan for restoring compliance activity back to pre-pandemic levels. In response to the pandemic, HMRC suspended some of its compliance work in 2020–21 where taxpayers could not cope with inquiries, and because it needed to redeploy staff. The number of compliance investigations which HMRC opened and closed in the year fell, which has led to a backlog of deferred cases. The Committee expects HMRC to fully investigate this backlog of cases and not leave them unchecked. HMRC told us that the action it took in 2020–21 would lead to a deferral rather than a loss of tax as tax legislation allows it to go back to earlier years where it finds non-compliance. HMRC expects compliance activity to get back to normal levels and timelines in 2022–23, but did not explain how this would be possible if it was clearing the backlog of cases at the same time. HMRC tracks compliance yield to measure the effectiveness of its compliance and enforcement activities. It considers yield will get back on “even keel” in 2022–23. It will need to identify and separate out the yield from deferred cases and new investigations if it is to fully understand and explain its performance. Recommendation: HMRC should, alongside its Treasury Minute response, set out: • how and by when it will have eliminated the backlog of compliance cases; and • how it will report its performance on deferred cases and new cases, so fair comparisons can be made with its pre-pandemic performance levels.