Source · Select Committees · Public Accounts Committee
9th Report - Tax evasion in the retail sector
Public Accounts Committee
HC 355
Published 12 February 2025
Recommendations
2
Accepted
Establish a clear strategy for HMRC to tackle tax evasion and deliberate non-compliance with objectives.
Recommendation
Despite significant lost revenue, HMRC does not have a clear objective or strategy to tackle tax evasion. Rather than a separate strategy to tackle tax evasion, HMRC has an overall compliance strategy which it applies to errors and carelessness as …
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Government Response Summary
The government agrees and will set out its approach for tackling deliberate non-compliance, including tax evasion, by March 2026. This approach will follow the 'Prevent, Promote, Respond' strategy, detailing measures to support businesses and tackle non-compliance, building on existing investigation work.
HM Treasury
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8
Accepted in Part
HMRC significantly underestimated additional tax revenue from online marketplace VAT liability legislation.
Recommendation
In January 2021 government introduced legislation making online marketplaces liable for VAT from overseas sellers, resulting in £1.5 billion of additional tax a year. This is five times greater than HMRC estimated at the time.15 We asked HMRC why this …
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Government Response Summary
HMRC will analyze the difference between original and current costings of the 2021 Online Marketplace Liability policy, and update its estimate of tax lost from VAT non-compliance, providing findings when sufficiently robust, with an update in September 2025 and a final report in April 2026; however, they may not be able to identify all the specific elements requested.
HM Treasury
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9
Accepted
Companies House and HMRC lack understanding of company register fraud's link to tax losses.
Recommendation
Companies House said that, prior to the introduction of the Economic Crime and Corporate Transparency Act (ECCTA), it estimated that 5% of UK registered companies were fraudulent. It explained that external commentators had estimated the figure could be as high …
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Government Response Summary
HMRC, Companies House, and Insolvency Service will establish a framework for sharing threat assessments, data and intelligence to improve collective understanding of risks, corporate fraud and any tax gap implications, laying out plans by September 2025 and completing an assessment of potential impacts on the tax gap by September 2026.
HM Treasury
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13
Acknowledged
HMRC lacks specific objectives or targets for tackling tax evasion rates.
Recommendation
HMRC does not have a specific focus on, or explicit objective for, its performance in tackling tax evasion.33 HMRC explained that it is driven by an overall compliance yield target which is designed to close the overall tax gap, but …
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Government Response Summary
HMRC will increase its budget by £762 million for 2025-26 to boost compliance and customer service capacity, including investing in IT systems, data and tax practitioners.
HM Treasury
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15
Acknowledged
HMRC, Companies House, and Insolvency Service commit to increasing collaboration to tackle phoenixism.
Recommendation
At Autumn Budget 2024, the government announced that it was increasing collaboration between HMRC, Companies House and the Insolvency Service to tackle phoenixism.40 The Insolvency Service told us that, since the publication of the National Audit Office’s report, it had …
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Government Response Summary
HMRC will develop a concrete plan to increase collaboration between HMRC, Companies House and the Insolvency Service to tackle phoenixism and will write to the Committee within 6 months to set out its plan.
HM Treasury
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16
Acknowledged
HMRC and Companies House system integration for joint registration faces significant long-term challenges.
Recommendation
HMRC and Companies House have explored opportunities from Companies House’s new powers, including a single streamlined system for registering and filing company, Corporation Tax and VAT documentation which would provide more assurance over the addresses of registered businesses. HMRC and …
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Government Response Summary
HMRC will write to the Committee in 6 months to update them on plans and progress regarding closer cooperation on company registrations and de-registrations, accounting and filing, as well as sharing risk intelligence and data.
HM Treasury
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18
Accepted
New ECCTA powers enable Companies House to effectively remove significant fraudulent company information.
Recommendation
In March 2024, the first measures of ECCTA came into force. ECCTA introduces significant changes to the role of Companies House which are intended to improve the reliability of the information on the company register and reduce the risk of …
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Government Response Summary
The government agrees to explore options to improve the authenticity and integrity of company address information on the register and will report progress in November 2025, and notes that Companies House has already removed over 73,400 addresses and rejected 7,000 new incorporations with inappropriate addresses.
HM Treasury
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21
Accepted
Online marketplaces primarily responsible for verifying overseas sellers' VAT establishment to prevent evasion.
Recommendation
The government introduced a legislative change in January 2021 to tackle tax non–compliance through online marketplaces. This removed responsibility for accounting for the VAT on sales from overseas retailers, and instead made the online marketplaces liable for the VAT.61 Overseas …
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Government Response Summary
HMRC will strengthen controls through enhanced address validation within the VAT registration service by April 2026, and will write to the Committee to update progress in 6 months, with a final summary by April 2026.
HM Treasury
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24
Deferred
HMRC has not formally assessed transaction-based reporting, despite its acknowledged compliance benefits.
Recommendation
HMRC has not pursued some controls used in other countries, including ‘transaction–based reporting’ where businesses are required to regularly report all sales and purchases to the tax authority, giving up to date information on the VAT owed.71 We asked HMRC …
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Government Response Summary
HMRC will explore the viability and effectiveness of additional controls which could reduce the risk posed by tax evasion and they are consulting on e-invoicing, with further development contingent on the outcome of this consultation which closes on 7 May.
HM Treasury
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27
Accepted
Insolvency Service disqualifies few directors for phoenixism despite significant tax debt losses
Recommendation
The Insolvency Service disqualified 6,274 directors over the period 2018–19 to 2023–24, but only seven of these were for phoenixism.83 HMRC estimates that phoenixism accounted for 15% of its tax debt losses in 2022–23, which equates to at least £500 …
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Government Response Summary
HMRC and the Insolvency Service will write to the Committee within six months with a plan to bear down on tax evaders and rogue directors who flout insolvency rules including developing a shared definition of phoenixism.
HM Treasury
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Conclusions (17)
3
Conclusion
Accepted
HMRC, Companies House and the Insolvency Service have failed to work collaboratively, missing opportunities to increase the tax take. Due to the fraudulent use of UK company registrations, contrived insolvencies and phoenixism to evade tax, HMRC, Companies House and the Insolvency Service must work closely to tackle these threats together. …
Government Response Summary
The government agrees and states that HMRC, Companies House, and the Insolvency Service have developed a joint programme for closer cooperation, including implementing consistent identity verification, fully tagged financial accounts, an enhanced data sharing framework, and changes to tackle rogue directors. A joint consultation on e-invoicing was also published in February 2025.
4
Conclusion
Accepted
The planned reforms to the role of Companies House leave huge gaps and it is still too easy to register companies fraudulently. The Economic Crime and Corporate Transparency Act 2023 introduces significant changes to the role of Companies House, including new powers to remove inaccurate information from the company register …
Government Response Summary
The government agrees and highlights actions already taken since March 2024, including removing over 73,400 inappropriate addresses and rejecting 7,000 new incorporations. It commits to continuing the rollout of ECCTA reforms, including identity verification, and will report on progress to the Committee in November 2025.
5
Conclusion
Accepted
HMRC’s VAT registrations processes are far too open to abuse, and it is not exploring options to tighten controls sufficiently. Checking whether businesses are genuinely UK established is important for VAT because online marketplaces are liable for VAT from overseas businesses selling on their platforms but not for UK established …
Government Response Summary
The government agrees and states that HMRC will explore additional controls and emerging technologies to reduce tax evasion, including real-time transaction reporting. A joint consultation on promoting e-invoicing and real-time transaction reporting was published in February 2025, with findings to inform future policy.
6
Conclusion
Accepted
HMRC and the Insolvency Service are not tackling tax evaders or rogue directors sufficiently, particularly for phoenixism. The number of prosecutions resulting from HMRC’s criminal investigations reduced from 749 in 2018–19 to 344 in 2023–24. The previous Public Accounts Committee has raised concerns about fewer prosecutions meaning there is less …
Government Response Summary
The government agrees and confirms that HMRC, Companies House, and the Insolvency Service have agreed a joint implementation plan to tackle rogue directors and phoenixism, including developing a shared definition and specific measures to close vulnerabilities and increase investigations. The government will write to the Committee within six months with further details.
1
Conclusion
Accepted
On the basis of a report by the Comptroller and Auditor General, we took evidence from HMRC, Companies House and the Insolvency Service on their approach to tackling tax evasion in the retail sector.1
Government Response Summary
The government agrees and states that HMRC, Companies House, and the Insolvency Service will establish a framework for sharing threat assessments, data, and intelligence to improve understanding of corporate fraud. HMRC plans to lay out its plans by September 2025 and complete a tax gap impact assessment by September 2026.
7
Conclusion
HMRC told us that the tax gap measure is its best estimate with the data available to it. It acknowledged that its estimates for behaviours, including evasion, are uncertain.10 HMRC explained that it revises its estimates in subsequent years, for example when data from external sources is updated or it …
10
Conclusion
Acknowledged
HMRC does not have a specific strategy for addressing tax evasion.23 In 2019 HMRC set its latest strategy to tackle tax non–compliance, which is built of three strands: promoting compliance through education and support; preventing non–compliance by improving policies and systems; and responding when non–compliance occurs.24 HMRC’s overall compliance strategy …
Government Response Summary
The government agrees with the committee's recommendation and states that HMRC is looking into a specific strategy for evasion as it might consider a specific strategy for a behaviour if that behaviour requires a particular type of response.
11
Conclusion
Acknowledged
HMRC told us it has some separate and specific strategic approaches to particular types of non–compliance, such as serious fraud and illicit tobacco, but not for tax evasion.26 It told us that evasion is just one element of the tax gap and it wants to tackle all elements of it, …
Government Response Summary
The government agrees with the committee's recommendation and states that HMRC is looking into a specific strategy for evasion as it might consider a specific strategy for a behaviour if that behaviour requires a particular type of response.
12
Conclusion
Acknowledged
Previously HMRC had an overall aim to stop the tax gap increasing.29 HMRC told us that it now wants to reduce the tax gap.30 At Autumn Budget 2024, the government increased HMRC’s settlement for 2025–26 by 4.5% in real terms and announced it was investing £1.4 billion over five years …
Government Response Summary
The government agrees with the committee's recommendation and states that HMRC wants to reduce the tax gap and highlights investments to increase compliance staff.
14
Conclusion
Accepted
Prior to the introduction of ECCTA in March 2024, Companies House had limited scope to share data or insight with other public bodies such as HMRC. The new measures under ECCTA include the ability to proactively share information with other government departments and law enforcement agencies36. Although Companies House and …
Government Response Summary
The government agrees with the committee's recommendation and states that HMRC, Companies House and the Insolvency Service have strong relations, and will implement consistent identity verification and authentication, share risk intelligence, and changes to penalise rogue directors, with an implementation target date of November 2025.
17
Conclusion
Acknowledged
Until April 2024, Companies House had limited powers to check the validity of information provided to it by registered companies. It also had limited enforcement and intelligence–gathering powers, and limited scope to share data with other public bodies. The lack of checks meant it was easy for fraudsters to set …
Government Response Summary
The government accepts the case for exploring options to improve the authenticity and integrity of company address information on the register and DBT and Companies House will report to the Committee on progress in November 2025.
19
Conclusion
Acknowledged
Some measures introduced under ECCTA will not be fully operational until Companies House develops the necessary systems and capability, or until further secondary legislation is in place. This includes verifying directors’ identities.53 Companies House told us identity verification will be introduced on a voluntary basis from spring 2025 and become …
Government Response Summary
The government accepts the case for exploring options to improve the authenticity and integrity of company address information on the register and DBT and Companies House will report to the Committee on progress in November 2025.
20
Conclusion
Acknowledged
The identity checks that Companies House is now responsible for are not intended to verify the address or place of business.57 Companies House told us that address verification, which it says would be an additional burden on businesses, is not part of ECCTA. It said there was a balance between …
Government Response Summary
The government accepts the case for exploring options to improve the authenticity and integrity of company address information on the register and DBT and Companies House will report to the Committee on progress in November 2025.
22
Conclusion
Accepted
When businesses register for VAT, HMRC does not verify whether they are UK–established in most cases.65 HMRC explained all VAT registrations are risk assessed and that just over 50% of VAT registrations require further checks which can, but do not routinely, include address validation.66 HMRC told us that is has …
Government Response Summary
The government agrees with the recommendation to strengthen controls on VAT registrations and will conduct a feasibility study to explore options for enhanced address validation within the VAT registration service, with implementation targeted for April 2026.
23
Conclusion
Accepted
Over a six–month period in September 2022, a large number of VAT– registered overseas businesses changed their registered address to one residential property in Cardiff. The resident received more than 11,000 letters from HMRC and debt collection agencies regarding unpaid VAT.68 The previous Public Accounts Committee raised this issue on …
Government Response Summary
The government agrees with the recommendation to strengthen controls on VAT registrations and will conduct a feasibility study to explore options for enhanced address validation within the VAT registration service, with implementation targeted for April 2026.
25
Conclusion
Accepted
In correspondence after our evidence session HMRC said that in 2023–24 it had launched 430 new criminal investigations and more than 10,200 civil investigations into suspected fraud, and had charged around 17,000 penalties for deliberate non–compliance.74 However, the number of prosecutions resulting from HMRC’s criminal investigations reduced from 749 in …
Government Response Summary
The government agrees with the recommendation that HMRC and the Insolvency Service should create a plan to tackle tax evaders and rogue directors, and will write to the committee within six months to set out this plan with an implementation target date of Autumn 2025.
26
Conclusion
HMRC first identified the threat of certain types of electronic sales suppression (ESS) in 2016. In 2019 it estimated that net losses were around £450 million and identified a need for further powers to tackle the issue. The National Audit Office reported that it was not until 2022 that the …