Source · Select Committees · Public Accounts Committee
Recommendation 19
19
Accepted
HMRC estimates the tax gap using best practice, best viewed over several years.
Conclusion
HMRC said that it estimates the tax gap in accordance with best practice, and pointed to a review by the Office for Statistics Regulation in 2019 as evidence of rigorous external scrutiny. It said it was always keen to improve its tax gap estimates if it can.65 HMRC said that the tax gap can only be properly measured two or three years after the year in question, and that it is best viewed over a number of years rather than a point in time.66 For assessing performance in the latest year, HMRC instead uses compliance yield to assess how effectively it is managing the tax gap in the short term.67
Government Response Summary
The government agrees, stating the recommendation is implemented via an existing methodology, agreed with HM Treasury and OBR, which sets annual compliance yield targets to align with maintaining a stable tax gap and secure 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.