Source · Select Committees · Public Accounts Committee
Recommendation 6
6
Accepted
Demonstrate that compliance yield targets are sufficiently ambitious and account for inflation.
Conclusion
HMRC’s reliance on the tax gap measure is not providing a sufficiently stretching target for its compliance performance. The tax gap is subject to a variety of factors, not just HMRC’s compliance performance, and its relationship to compliance yield is not straightforward. In 2021–22, the latest year available, HMRC estimated the tax gap had remained at 4.8% of all liabilities, despite compliance yield as a proportion of theoretical tax liabilities declining in that year. The lag in measuring the tax gap means that HMRC must pay closer attention to compliance yield as an indicator of performance in the short term. In 2022–23, HMRC’s compliance yield was £34 billion, against a target of £36 billion, set at a level to maintain the tax gap. HMRC expects to miss its compliance yield target again in both 2023–24 and 2024–25, and identified inflation as negatively affecting its performance on compliance yield. We are concerned that HMRC places too much reliance on the tax gap measure to justify its performance, rather than focusing on achieving its compliance yield targets, which are a more direct measure of its performance. Recommendation 6: HMRC needs to demonstrate that its compliance yield target is sufficiently ambitious to provide stretch in HMRC’s performance each year and to take account of inflation in the tax base. 8 HMRC performance in 2022–23 1 Supporting taxpayers
Government Response Summary
The government agrees, stating the recommendation is implemented as HMRC's compliance yield target is already set using an agreed methodology with HM Treasury and OBR, ensuring it's ambitious, aligns with maintaining a stable tax gap, and increases with tax receipts and inflation.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Recommendation implemented In accordance with an agreed methodology between HMRC, HM Treasury and the Office for Budget Responsibility (OBR), HMRC’s annual compliance yield target is set at a level that aligns with the OBR’s assumption that core compliance activity maintains a stable tax gap, and to secure the additional revenues from fiscal event measures that bear down on the tax gap. This methodology ensures the compliance yield target increases in line with tax receipts, encompassing increases in the tax base. This target is highly stretching, and it is forecast to increase year on year.