Source · Select Committees · Public Accounts Committee
Forty-Ninth Report - Managing tax compliance following the pandemic
Public Accounts Committee
HC 739
Published 3 May 2023
Recommendations
14
Rejected
HMRC unable to set clear compliance yield targets for pandemic recovery efforts.
Recommendation
We asked HMRC whether, to catch up on compliance yield lost during the pandemic, it should expect to generate higher levels of yield than before the pandemic over the next few years. HMRC acknowledged that this should happen over time …
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Government Response Summary
The government explicitly rejects the recommendation to target higher compliance yield, explaining that HMRC sets targets based on an agreed methodology with the Treasury and OBR to maintain a stable tax gap. HMRC prioritizes compliance risks, ensuring identified risks can still be addressed.
HM Treasury
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25
Rejected
Weakened measures and insufficient compliance yield indicate the tax gap will likely grow.
Recommendation
Some measures that affect the tax gap have weakened since the start of the pandemic, indicating that the tax gap may grow in the coming years. Non-payment of taxes owed is one such component of the tax gap that HMRC …
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Government Response Summary
The government rejects the committee's implication, asserting its commitment to ensure HMRC has sufficient funding to maintain compliance performance and tackle the tax gap. It highlights a £79 million investment in Autumn Statement 2022 for staff to combat tax fraud and risks among wealthy taxpayers, expected to generate £725 million in revenue.
HM Treasury
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26
Rejected
HMRC faces resource challenges to maintain tax gap, as new staff require lengthy training.
Recommendation
We asked whether HMRC needed more resources to catch up on the impact of the pandemic and to keep the tax gap from growing, and whether it was looking to recruit more. HMRC acknowledged that it will be more challenging …
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Government Response Summary
The government rejects the committee's suggestion regarding resource sufficiency, affirming its commitment to provide HMRC with adequate funding. It cites a £79 million investment from Autumn Statement 2022 to hire staff targeting serious tax fraud and wealthy taxpayers, emphasizing its strategic approach to deploying resources.
HM Treasury
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Conclusions (6)
7
Conclusion
Rejected
During the two pandemic years of 2020–21 and 2021–22, ‘compliance yield’ (the additional revenues protected as a result of HMRC’s interventions) per staff member fell from £1.3 million a year to £1.1 million (in 2021 prices).10 HMRC told us this was due to several factors, including the fact that staff …
Government Response Summary
The government disagrees with the committee's observation, stating that HMRC sets compliance yield targets to maintain a stable tax gap, deploys resources effectively, and that the tax compliance gap remained low during the pandemic years.
8
Conclusion
Rejected
HMRC did not initially recruit at scale but has more recently recruited 4,800 new compliance staff, leading to 2,500 more FTE than in 2021–22. HMRC expects staff productivity to increase over the next few years, but told us that new staff take up to four years to be fully productive. …
Government Response Summary
The government explicitly disagrees with the committee's observation (interpreted as a recommendation), explaining that reduced yield during the pandemic was due to staff deployment to the Taxpayer Protection Taskforce. They assert that compliance performance should be viewed on a multi-year basis and that HMRC constantly assesses risks to deploy resources effectively.
12
Conclusion
Rejected
HMRC defines compliance yield as the additional revenue collected and protected that would have otherwise been lost to the Exchequer if not for HMRC’s interventions. It is the most direct measure of the impact of HMRC’s compliance work, and it covers both the broad effect of its measures to prevent …
Government Response Summary
The government disagrees with the recommendation, stating that HMRC sets compliance yield targets based on an agreed methodology with HM Treasury and the OBR, aimed at maintaining a stable tax gap and delivering revenues from fiscal event measures.
13
Conclusion
Rejected
In the five years before the pandemic, HMRC collected or protected an average of 5.2% of tax revenues through its compliance work. In 2020–21, total tax revenues fell as a result of the pandemic, but compliance yield fell slightly further, dropping to 5.0% of total revenues. In 2021–22, total revenues …
Government Response Summary
The government disagrees with the committee's observation, stating that HMRC sets compliance yield targets to maintain a stable tax gap, deploys resources effectively, and that the tax compliance gap remained low in the pandemic years in line with pre-pandemic levels.
23
Conclusion
Rejected
HMRC is funded to stop the tax gap from growing. The tax gap is an important measure of how much revenue may be missed—due to evasion, avoidance or non-payment —that could otherwise fund vital public services.38 32 C&AG’s Report, para 2.2, 2.14 33 Qq 57–58, 64–65; C&AG’s Report, para 2.12 …
Government Response Summary
The government disagrees with the committee's observation, asserting that HMRC's funding is sufficient to maintain compliance performance and a stable tax gap, with investments already made to tackle serious tax fraud and compliance risks.
24
Conclusion
Rejected
Due to the way it is estimated, the tax gap does not yet reflect the full impact of the pandemic and will not do so for some time. HMRC’s latest estimate is that the tax gap remained stable in 2020–21, at 5.1% of taxes theoretically owed. However, HMRC’s tax gap …
Government Response Summary
The government disagrees with the committee's observation, stating that HMRC's funding levels are adequate, with a track record of investment in compliance to generate revenue and maintain a stable tax gap, as shown in the 2023 Measuring Tax Gaps publication.