Source · Select Committees · Public Accounts Committee
Recommendation 18
18
Accepted
The UK tax gap for 2021-22 remained at 4.8%, despite declining compliance revenue.
Conclusion
The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC and what was actually paid. HMRC estimates the tax gap in 2021–22, the latest year available, has remained at 4.8% of all liabilities. This is despite the tax revenue HMRC generated from its compliance work declining as a percentage of theoretical tax liabilities in that year.63 HMRC said that the relationship between the tax gap and compliance yield is not straightforward and that there are a variety of other factors that can affect the tax gap.64
Government Response Summary
The government agrees with the conclusion, stating the recommendation has been implemented through an agreed methodology with HMRC, HM Treasury, and the OBR, which sets annual compliance yield targets to maintain a stable tax gap and secure additional revenues.
Government Response
Accepted
HM Government
Accepted
6.1 The government agrees with the Committee’s recommendation. Recommendation implemented 6.2 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. 6.3 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.