Recommendation 4

Resource constraints are limiting HMRC’s ability to get the optimum level of compliance yield. Compliance yield represents the additional revenues that HMRC considers it has generated and the revenue losses it has prevented through its enforcement and compliance activities. HMRC spent around £1.5 billion on such activities in 2020–21 and generated a yield of £30.4 billion. HMRC’s data indicate that it would increase this yield if it spent more on compliance, particularly if it increased its activities to ensure large business complied with their tax obligations. On average HMRC generates £17 of compliance yield for each £1 it spends, with returns from its large business activity at £60 to £1. HMRC told us that marginal rates of return from additional compliance resources would be lower than average rates. It also said it constantly adjusts the resource it applies to different areas of its business, based on both expected yield and risks that need to be managed. We understand from HMRC’s evidence that the 2021 Spending Review gave it an HMRC Performance in 2020–21 7 additional £180 million over three years for “spend to raise”, of which £90 million is to come in 2024–25. The additional funding in 2024–25 is equivalent to 2% of HMRC’s total running costs in 2020–21. Recommendation: HMRC should, in its Treasury Minute response, set out: • its analysis, including the costs and benefits, in determining the overall size of its compliance programme; and • an assessment of the extent to which additional spending would lead to any further increase in tax revenue.