Recommendation 1

HM Government Not Addressed

Introduction from the Committee HMRC is responsible for administering the UK’s tax system. One of its three departmental objectives is to “collect revenues due and bear down on avoidance and evasion”. HM Treasury leads on the design of the tax system. It agrees HMRC’s revenue and efficiency targets, and levels of funding. HMRC reported record tax revenue of £627.9 billion in 2018–19, an increase of £22.1 billion (3.6%) on 2017–18. Tax administrations rely heavily on taxpayers reporting and paying their taxes in line with the rules. In 2018–19, HMRC received 90% of total tax owed this way. HMRC’s most recent estimate of the tax gap, the difference between tax owed and tax that is actually paid, was £31 billion in 2018–19, equivalent to 4.7% of the total tax owed. HMRC estimated that its compliance activities increased tax revenue by £34.1 billion in 2018–19 against a target of £30 billion. The tax gap figures do not include the impact of COVID-19 and the full effects will take some time to become clear. Total compliance yield in the first quarter of 2020–21 (£7.5 billion) has already fallen by 51% compared to the same quarter in 2019–20 (£15.4 billion). HMRC estimates up to £3.5 billion of furlough payments made by 16 August 2020 may have been fraudulent or paid in error. Based on a report by the National Audit Office, the Committee took evidence, on 7 September 2020 from HM Revenue & Customs and HM Treasury. The Committee published its report on 16 October 2020. This is the Government response to the Committee’s report. Relevant reports • NAO report: Tackling the tax gap – Session 2019-21 (HC 372) • PAC report: Tackling the tax gap – Session 201921 (HC 650)