Source · Select Committees · Public Accounts Committee
Recommendation 20
20
Accepted
HMRC missed its 2022-23 compliance yield target and expects to miss future targets.
Conclusion
HMRC agrees a compliance yield target each year with HM Treasury and ministers, set at a level to maintain the tax gap at its current level.68 HMRC told us that this target is derived from a model endorsed by the Office for Budget Responsibility. Given how this model is set up, the target is closely linked to expected tax revenue for that year.69 We have previously expressed concern that any compliance yield projections or targets HMRC expresses in cash terms will not be sufficiently stretching during a period of high inflation.70 However, HMRC said that more employees earning more and hence paying more tax does not necessarily increase the tax gap, as there is little non-compliance associated with Pay As You Earn taxation.71 In addition, a lot of HMRC’s compliance yield comes from settling cases relating to prior years. HMRC said that this causes a lag in 61 Q 62 62 Q 64 63 C&AG’s Report, para 5 64 Qq 24–25 65 Q 24 66 Qq 24, 31 67 Q 30; C&AG’s Report, para 1.26 68 C&AG’s Report, para 1.26 69 Q 26 70 Committee of Public Accounts, HMRC performance in 2021–22, 33rd Report of Session 2022–23, HC 686, 11 January 2023 71 Q 31 HMRC performance in 2022–23 15 its compliance yield performance, which has been accentuated by increasing tax revenues due to inflation. In 2022–23, HMRC’s compliance yield was £34 billion, up 10% from the previous year but £2 billion below its target of £36 billion. HMRC said that it did not expect to hit its compliance yield targets for 2023–24 or 2024–25.72 72 Qq 25, 26; C&AG’s Report, para 6 16 HMRC performance in 2022–23
Government Response Summary
The government agrees, stating the recommendation has been implemented through an agreed methodology with HMRC, HM Treasury, and the OBR, which sets annual compliance yield targets to align with maintaining a stable tax gap and securing 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.