Thirty-Third Report - HMRC performance in 2021–22

Resourcing HMRC’s compliance work to maintain rather than reduce the tax gap means the government is missing out on billions in lost revenue. HMRC estimates that the tax gap—the difference between the amount of tax that should, in theory be … Read more Resourcing HMRC’s compliance work to maintain rather than reduce the tax gap means the government is missing out on billions in lost revenue. HMRC estimates that the tax gap—the difference between the amount of tax that should, in theory be paid to HMRC, and what was actually paid—was £32 billion in 2020–21, or 5.1% of all tax liabilities, the same proportion as in 2019–20. This masks changes in the tax gap for each category of tax, with the tax gap for VAT decreasing while the tax gap for Corporation Tax, excise duties and income tax Self-Assessment increasing in 2020–21. HMRC bases its compliance performance and resourcing on maintaining the tax gap and stopping it from growing. However, there remains scope for reducing it; for every £1 that HMRC spends on compliance activities, it recovers £18 in additional tax revenue. The pandemic has created more uncertainty in the data that HMRC uses to estimate the tax gap, but HMRC does not currently report the range of uncertainty in its headline estimate. HMRC told us that this would be difficult to do, but possible. Recommendations: • HMRC should set out what level of investment in its compliance teams would be needed to reduce the size of the tax gap, and confirm what, if any, intention it has to pursue this. • HMRC should also calculate and report an uncertainty range for its headline tax gap estimate to provide more transparency to users of the estimate. Show less

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The government has a target of 2.4% of GDP to be spent on research and development.32 To encourage this investment, HMRC administers tax reliefs to companies via two schemes – one for large companies and one for small and medium-sized … Read more The government has a target of 2.4% of GDP to be spent on research and development.32 To encourage this investment, HMRC administers tax reliefs to companies via two schemes – one for large companies and one for small and medium-sized enterprises. HMRC said that the scale of the schemes is growing all the time. HMRC said that it has published research that demonstrates that the two schemes increase research and development investment, albeit marginally for small and medium-sized enterprises. While this research demonstrates what additional research and development activity was stimulated, it does not quantify the benefit to the UK economy.33 26 Qq 47–49; C&AG’s report, para 7 27 Qq 58, 66 28 Qq 30, 47–48, 51, 55 29 Q 51 30 Q 60 31 Q 64 32 Q 96 33 Qq 103–106 HMRC performance in 2021–22 15 Show less

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With the resources it was given in the 2021 Spending Review, HMRC’s aim is to maintain the tax gap and prevent it from growing. For every £1 that it spends on compliance activity, it said it recovers £18 in additional tax revenues. HMRC sometimes gets additional resources from HM Treasury …

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In 2021–22, HMRC granted research and development tax reliefs worth £9.5 billion.34 HMRC said the relief is an attractive target for abuse, whether by companies that have not carried out any research and development or by advisors encouraging companies to push the boundaries of what expenditure is eligible to be …

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