HMRC estimate £5.5bn was lost due to tax evasion in 2022/23, 81% of which was from small businesses, up from 66% in 2019/20.
According to HMRC, while the overall level of tax evasion has stabilised in recent years, it has increased among small businesses.
Gareth Davies, head of the NAO, said: ‘Although tax evasion has been growing among small businesses, HMRC has so far lacked an effective strategic response. Its assessment of risks has given too little emphasis to widely used methods of evasion such as sales suppression and phoenixism. It has also failed to use new powers to tackle tax evasion.’
A report by the NAO notes that HMRC have had success in raising more tax from online retail by making online marketplaces liable for VAT on sales by overseas retailers and now estimates that at least £1.5bn more in VAT is collected each year, five times what it initially predicted. However, the NAO said that significant gaps remain in checks around online retailers, and overseas companies can falsely present themselves as UK-based to evade VAT by exploiting weaknesses in company registration criteria. Before stricter rules were implemented at Companies House from March 2024, there was a surge in company registrations in 2022/23.
Commenting on the findings of the report, Dawn Register, head of tax dispute resolution at BDO, said: ‘The NAO report illustrates that HMRC is simply not using all the new powers at its disposal. HMRC has a vast array of both civil and criminal powers to tackle tax evasion. It should make full use of these powers, and then evaluate their effectiveness, before seeking further powers. The fact that we are seeing a persistent level of tax evasion in the economy either means there are insufficient resources – or those resources are not being used effectively – or both.’
HMRC estimate £5.5bn was lost due to tax evasion in 2022/23, 81% of which was from small businesses, up from 66% in 2019/20.
According to HMRC, while the overall level of tax evasion has stabilised in recent years, it has increased among small businesses.
Gareth Davies, head of the NAO, said: ‘Although tax evasion has been growing among small businesses, HMRC has so far lacked an effective strategic response. Its assessment of risks has given too little emphasis to widely used methods of evasion such as sales suppression and phoenixism. It has also failed to use new powers to tackle tax evasion.’
A report by the NAO notes that HMRC have had success in raising more tax from online retail by making online marketplaces liable for VAT on sales by overseas retailers and now estimates that at least £1.5bn more in VAT is collected each year, five times what it initially predicted. However, the NAO said that significant gaps remain in checks around online retailers, and overseas companies can falsely present themselves as UK-based to evade VAT by exploiting weaknesses in company registration criteria. Before stricter rules were implemented at Companies House from March 2024, there was a surge in company registrations in 2022/23.
Commenting on the findings of the report, Dawn Register, head of tax dispute resolution at BDO, said: ‘The NAO report illustrates that HMRC is simply not using all the new powers at its disposal. HMRC has a vast array of both civil and criminal powers to tackle tax evasion. It should make full use of these powers, and then evaluate their effectiveness, before seeking further powers. The fact that we are seeing a persistent level of tax evasion in the economy either means there are insufficient resources – or those resources are not being used effectively – or both.’
