Source · Select Committees · Public Accounts Committee
Recommendation 19
19
Not Addressed
HMRC lacks sufficient analysis on upstream and downstream compliance costs.
Conclusion
HMRC explained that its strategy is to promote good compliance and prevent non–compliance (collectively known as ‘upstream’ compliance), and this is “bearing fruit,” with upstream yield increasing to about a third of all yield in 2023–24. HMRC considers that upstream compliance is less costly than ‘downstream’ work (carried out in response to suspected non–compliance), although downstream work continues to be necessary.33 HMRC acknowledged that it does not currently have sufficient analysis of how its costs fall between upstream and downstream compliance or the marginal returns from adding compliance resource.34 HMRC also told us that it has been investing in digital support for its compliance work to help it better target cases, thereby improving compliance productivity and the experience of compliant customers by reducing checks on them.35
Government Response Summary
The government claims the recommendation is implemented but does not address the committee's observation that HMRC lacks sufficient analysis of costs and marginal returns between upstream and downstream compliance work, instead providing updates on compliance yield and staff recruitment.
Government Response
Not Addressed
HM Government
Not Addressed
3.1 The government agrees with the Committee’s recommendation. Recommendation implemented 3.2 HMRC has written to the Committee alongside this Treasury Minute response. 3.3 In 2023-24, HMRC secured record compliance yield of £41.8 billion compared to £34 billion in the previous financial year. This exceeded the annual target of £40.5 billion and was higher than pre-pandemic levels of compliance yield performance. Pre-pandemic productivity in 2019-20 was impacted by two specific very large cases, which resulted in an uplift to performance. HMRC are on track to achieve the 2024-25 end of year compliance yield target of £45.4 billion, a further improvement in performance and productivity. Final figures for 2024-25 will be released within the Annual Report and Accounts. 3.4 HMRC set stretching annual compliance yield targets in accordance with a methodology agreed by HMRC, HM Treasury and the Office for Budget Responsibility (OBR). 3.5 As announced at Autumn Budget 2024 and Spring Statement 2025, HMRC will recruit an additional 5,500 compliance staff by March 2030. This investment, alongside other measures to close the tax gap (such as investing in modernising systems, delivering policy reforms and tackling tax debt) will deliver £7.5 billion of additional tax revenue per year by 2029-30. 3.6 This commitment alongside investing in improvements in HMRC’s systems risking capabilities is expected to increase productivity over the Spending Review 2025 period. 3.7 The average rate of return of compliance activity to yield is just one factor HMRC considers when deciding how best to deploy its resources. HMRC will aim to increase productivity, while optimising deployment across compliance priorities.