The National Audit Office (NAO) has found that while HMRC has met its targets to raise more tax revenue in the short term, an estimated £16bn – just under half the current tax gap – is lost to tax fraud each year.
The National Audit Office (NAO) has found that while HMRC has met its targets to raise more tax revenue in the short term, an estimated £16bn – just under half the current tax gap – is lost to tax fraud each year. Its report, Tackling tax fraud: how HMRC responds to tax evasion, the hidden economy and criminal attacks, on 17 December 2015, concludes that HMRC needs to improve the way it uses data and analysis to understand the effect of its actions to tackle fraud.
The report comes as HMRC unveils its new plans to go digital by 2020, setting out its roadmap in Making tax digital, as well as its intention to run a series of consultation events during January and February.
HMRC reported £26.6bn additional revenue in 2014/15 from its compliance work, including work to tackle tax fraud and other parts of the tax gap, such as error and tax avoidance. However, the NAO said HMRC had ‘only partial data on how much of the total yield is derived from its work to counter tax fraud’; for example, it reported that HMRC holds more complete information on its work to tackle organised crime than on tax evasion.
‘We estimate that between 30% and 40% of total compliance yield is generated by HMRC’s activities to tackle tax fraud, but this is an estimate based on partial evidence,’ the NAO said. ‘HMRC has more to do to understand what benefits it has achieved by increasing the number of prosecutions. In 2014/15, HMRC claimed £295m in yield from the deterrent effect of its additional 1,000 prosecutions. However, in 2015, HMRC evaluated the deterrent effect of these prosecutions and found that it could not verify their monetary value.’
The NAO continued: ‘HMRC believes [SMEs] are responsible for tax losses of £17bn, almost half of the total tax gap, but does not consider its internal estimate of how much of this is the result of tax fraud robust enough for publication.’ It further noted that HMRC had focused on ‘less complex cases’ to meet its target of increasing prosecutions by 1,000 a year by 2014/15. Figures in the report showed that 26% of successful prosecutions involved less than £10,000 of tax at stake, while only 10% of cases involved tax amounts of £1m or more.
Amyas Morse, head of the NAO, said that while HMRC lost £16bn yearly to tax fraud, he acknowledged that ‘reducing these losses is not straightforward’. He added: ‘HMRC now needs to consider whether its overall strategy is designed to achieve the best long-term outcomes.’
PAC chair Meg Hillier MP said: ‘HMRC clearly needs to think harder about how it tackles tax evasion, the hidden economy and criminal attacks. Time and time again we hear that government departments don’t have the data or information that they need to plan or evaluate their activities properly, despite them being responsible for setting up these projects or programmes in the first place. HMRC is no different in this respect. HMRC needs to use the powers and sanctions it has to make a public example of those who break the rules.’
The National Audit Office (NAO) has found that while HMRC has met its targets to raise more tax revenue in the short term, an estimated £16bn – just under half the current tax gap – is lost to tax fraud each year.
The National Audit Office (NAO) has found that while HMRC has met its targets to raise more tax revenue in the short term, an estimated £16bn – just under half the current tax gap – is lost to tax fraud each year. Its report, Tackling tax fraud: how HMRC responds to tax evasion, the hidden economy and criminal attacks, on 17 December 2015, concludes that HMRC needs to improve the way it uses data and analysis to understand the effect of its actions to tackle fraud.
The report comes as HMRC unveils its new plans to go digital by 2020, setting out its roadmap in Making tax digital, as well as its intention to run a series of consultation events during January and February.
HMRC reported £26.6bn additional revenue in 2014/15 from its compliance work, including work to tackle tax fraud and other parts of the tax gap, such as error and tax avoidance. However, the NAO said HMRC had ‘only partial data on how much of the total yield is derived from its work to counter tax fraud’; for example, it reported that HMRC holds more complete information on its work to tackle organised crime than on tax evasion.
‘We estimate that between 30% and 40% of total compliance yield is generated by HMRC’s activities to tackle tax fraud, but this is an estimate based on partial evidence,’ the NAO said. ‘HMRC has more to do to understand what benefits it has achieved by increasing the number of prosecutions. In 2014/15, HMRC claimed £295m in yield from the deterrent effect of its additional 1,000 prosecutions. However, in 2015, HMRC evaluated the deterrent effect of these prosecutions and found that it could not verify their monetary value.’
The NAO continued: ‘HMRC believes [SMEs] are responsible for tax losses of £17bn, almost half of the total tax gap, but does not consider its internal estimate of how much of this is the result of tax fraud robust enough for publication.’ It further noted that HMRC had focused on ‘less complex cases’ to meet its target of increasing prosecutions by 1,000 a year by 2014/15. Figures in the report showed that 26% of successful prosecutions involved less than £10,000 of tax at stake, while only 10% of cases involved tax amounts of £1m or more.
Amyas Morse, head of the NAO, said that while HMRC lost £16bn yearly to tax fraud, he acknowledged that ‘reducing these losses is not straightforward’. He added: ‘HMRC now needs to consider whether its overall strategy is designed to achieve the best long-term outcomes.’
PAC chair Meg Hillier MP said: ‘HMRC clearly needs to think harder about how it tackles tax evasion, the hidden economy and criminal attacks. Time and time again we hear that government departments don’t have the data or information that they need to plan or evaluate their activities properly, despite them being responsible for setting up these projects or programmes in the first place. HMRC is no different in this respect. HMRC needs to use the powers and sanctions it has to make a public example of those who break the rules.’
