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PAC report: HMRC must ensure it is never easier to cheat the tax system than comply

3 May 2023

  • Tax compliance yield down by £9 billion over the 2 years of pandemic
  • Likely that many more non-compliant taxpayers will escape paying their fair share of tax
  • HMRC cannot demonstrate a credible deterrent effect of its tax-compliance work

In response to the emergency of the pandemic, HMRC redeployed more than 4,000 compliance staff to work on the governments new COVID support schemes. As a result, total tax revenues fell, as did compliance yield (the additional revenues protected as a result of HMRC’s interventions). 

The disruptions caused by the pandemic and the cost-of-living crisis mean the tax gap is highly uncertain, and levels of non-payment are rising.  HMRC says its strategy is to prosecute the most serious forms of evasion and criminal activity, and that it focuses on high-value and high-profile cases rather than large volumes of smaller cases. But it does not expect compliance investigations and prosecutions to return to pre-pandemic levels. The PAC is concerned that without sufficient numbers of prosecutions HMRC cannot demonstrate a credible deterrent effect.   

The Committee says this makes it hard to have confidence that HMRC will live up to its claim that no tax will go uncollected as a result of the pandemic, and critically it could undermine the sense of fairness on which the tax system relies. 

Key findings:  

  • Tax revenue directly attributable to HMRC compliance work (compliance yield) fell as a proportion of tax revenue from an average of 5.2% before the pandemic to 4.2% in 2021-22, the lowest level since 2011-12. 
  • This equates to a loss of £9 billion of compliance yield collected over the two years (2020-21 and 2021-22) compared to pre-pandemic. 
  • Staff working on tax compliance generated £1.1 million of compliance yield a year per staff member, compared with £1.3m before the pandemic.
  • HMRC opened 114,000 (32%) fewer cases in 2020-21 than the previous year and paused many ongoing ones.
  • As well as prosecuting fewer people for non-compliance, HMRC is not doing enough to help those who want to pay their taxes correctly.
  • HMRC does not have the resilience to deal with expected growth in the tax gap (the difference between the amount of tax that should, in theory, be paid to HMRC to fund vital public services, and what is actually paid).

Chair's comments

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.” 

Further information

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