Committee concerned about HMRC prosecution numbers

The Public Accounts Committee published its final report on managing tax compliance following the pandemic on 3 May, which expresses concern about the impact of the reprioritisation of staff by HM Revenue and Customs (HMRC) as part of the pandemic response that has inevitably led to less tax compliance activity.

The key findings in the Committee’s report include that: tax revenue directly attributable to HMRC compliance work fell as a proportion of tax revenue from an average of 5.2 percent before the pandemic to 4.2 percent in 2021-22, which equates to a loss of £9bn of compliance yield collected over the two years; staff working on tax compliance generated £1.1m of compliance yield a year per staff member, compared with £1.3m before the pandemic; HMRC opened 114,000 fewer cases in 2020-21 than the previous year and paused many ongoing cases; as well as prosecuting fewer people for non-compliance, HMRC is not doing enough to help those who want to pay their taxes correctly; and HMRC does not have the resilience to deal with the expected growth in the tax gap.

The report puts forward a set of conclusions and related recommendations to address the concerns identified, as follows: HMRC should learn from the experience of staffing challenges in the pandemic and specify how it can respond more quickly where it looks likely compliance work will not keep pace with the levels of non-compliance; HMRC should develop a better understanding of the deterrent effect of its compliance work, for example by monitoring the future revenue benefit of prosecutions compared to those it decides not to prosecute; HMRC should set a clear target of the compliance yield required to make up the shortfall during the pandemic, and specify a rolling target for compliance yield as a percentage of tax revenues; HMRC should ensure it is providing sufficient support to taxpayers who want to pay their tax; HMRC should develop statistically robust estimates of the level of error in its compliance yield measure, and how far taxpayers are overcharged, as well as demonstrating that it has taken all proportionate steps to identify and correct overcharges; and HMRC needs to build in more resilience to the tax system, with the tax gap at risk of growing and high returns available from compliance work there is a strong value for money case for increasing resources. In addition to this, HMRC should specify a contingency plan for bringing in additional compliance capacity to ensure increased levels of non-compliance can be tackled quickly, and before the window closes for investigating cases it did not pursue during the pandemic.

Commenting on the report’s findings, Dame Meg Hillier MP, Chair of the Public Accounts Committee, said: “HMRC’s ability and efforts to draw in the tax that is so desperately needed to pay for public services were seriously compromised by the pandemic. That alone is bad enough in the current economic crisis but we need to see more effort from HMRC get this back. It is simply not doing enough to deter and punish cheats, even at very high levels. It also needs to help people who want to do the right thing. We cannot and must not arrive at a situation in the UK where it is easier to cheat the tax system than it is to comply with it.”