Recommendation 4

Although HMRC has yet to see the full effects of COVID-19 on taxpayer compliance, it is already estimating up to £3.5 billion of fraud and error in furlough payments and has seen a significant drop in compliance yield in the first quarter of 2020–21.1 HMRC’s COVID-19 support schemes have led to a major reprioritisation of its resources and it has needed to reduce compliance activity while under lockdown. This has adversely affected HMRC’s core compliance activities and led to a backlog of investigations. There has been a significant fall in HMRC’s compliance yield in Quarter one of 2020–21 compared to Quarter one in 2019–20. Total compliance yield fell by 51%. HMRC assumes that most taxpayers will comply and can pay the tax they owe. COVID-19 means HMRC needs to reassess these assumptions. HMRC has already adapted its approach to compliance by reducing contact with taxpayers under financial pressure and it is initially contacting those it considers most able to pay. Recommendation: HMRC should, alongside its Treasury Minute response, write to us separately explaining in detail how it will change its compliance approach in light of COVID-19.