Source · Select Committees · Public Accounts Committee
Recommendation 7
7
HMRC measures the additional amount it generates by tackling tax avoidance, evasion and non-compliance, known...
Conclusion
HMRC measures the additional amount it generates by tackling tax avoidance, evasion and non-compliance, known as compliance yield. In its 2018–19 Annual Report, HMRC reported £34.1 billion of compliance yield, compared with £30.3 billion in the previous year.12 HMRC confirmed to us that it does not provide confidence intervals for its reported compliance yield.13 We asked the Department about the relationship between its tax gap and compliance yield estimates. HMRC explained to us that there are a number of reasons why it is “incredibly difficult to create an equivalence between the tax gap and the current compliance yield”. Cases that HMRC investigates can have yield going back over a number of years, whereas the tax gap estimates only relate to the year under consideration. There are also other factors that will impact the size of the tax gap, such as, economic conditions and the size of the taxpaying population.14 We also asked the Department about the level of uncertainty associated with its reported costs of compliance activities. HMRC explained to us that it is unable to measure the indirect effect of many of its activities, such as customer services, in promoting voluntary compliance. It therefore only includes the direct costs associated with the compliance part of the Department in its reported cost figures.15 Limitations of HMRC’s tax gap analysis
Government Response
Not Addressed
HM Government
Not Addressed
1.5 The government disagrees with the Committee’s recommendation. 1.6 Compliance yield is an estimate of the impact of activity undertaken by HMRC to collect or protect re venues that would have otherwise been lost to the UK through tax avoidance, evasion and other non- compliance. Compliance activities vary in nature and levels of uncertainty and due to this complexity, the department does not produce a confidence interval for the total value of compliance yield. 1.7 The department reviews the suitability of assumptions used in these methodologies and they are governed by rigorous internal and external assurance processes. This includes Office of Budget Responsibility scrutiny throughout fiscal event processes and annual review by the National Audit Office. 1.8 The department uses different methodologies to estimate the various elements of compliance yield, so establishing a robust and consistent method for estimating a range around the reported compliance yield would be a complex task. Any method would be heavily based on assumptions so would be limited and not necessarily provide any further insight into the department’s performance.