Recommendation 21

In its evidence to us TaxWatch argued for a substantial investment in tax compliance to ensure that public confidence in the tax system is maintained and enhanced.33 In its evidence, the Association of Accounting Technicians (AAT) argued that HMRC should undertake more audits of taxpayers, and, in its evidence, Unchecked UK called for targeted audits of large businesses.34 Both TaxWatch and AAT referred to research published by Warwick University in April 2021 into the effects of tax audits. AAT said the research suggests that undertaking more audits of taxpayers reduces evasion, avoidance, and error, and thus increases tax revenue.35 Given this evidence, and the high returns across HMRC’s compliance activities, we asked HMRC about its plans to expand its compliance activity. In response, HMRC explained why it had deferred compliance activity in 2020–21 while protecting revenue. It did not outline any plans to invest more in its compliance activities or whether it had made a case to HM Treasury to do so.36 HMRC did however tell us that in spending review 2021, it had “been given some money for spend to raise. I think it’s £30 32 Q39 33 Written Evidence HMP0004-Tax Watch, para 66 34 An audit involves a tax official undertaking a review of a tax return to ensure that the information that has been entered is correct. 35 Written Evidence HMP0002- Association of Accounting Technicians, paras 3.14–3.16 and Written Evidence HMP0003- Unchecked UK, para 29 36 Q 43 HMRC Performance in 2020–21 15 million, £60 million, £90 million over the three years.” HMRC said it would be working with HM Treasury to determine the best thing to spend that money on.37 £90 million is the equivalent of around 2% of the £4.3 billion cost of running HMRC in 2020–21.38 Tax avoidance