NAO report highlights need for a ‘mammoth catch-up exercise’ by HMRC

Commenting on the NAO’s report which found that HMRC's compliance work generated around £9bn less tax revenue than normal during the pandemic, Dawn Register, BDO’s Head of Tax Dispute Resolution said:

“The NAO report shows that HMRC opened fewer cases and closed fewer compliance cases in 2020-21. This is no surprise as our tax collection agency switched to the unprecedented service of dishing out money rather than collecting it.

“The lasting impact is that less tax is collected and outstanding tax debt to the Exchequer rises. £9 billion in reduced revenue from compliance activity during the two tax years ending 2021 and 2022 is clearly a huge number. This suggests a mammoth catch-up exercise is required by HMRC to ensure this money is not lost forever from the Treasury coffers.

“HMRC does have extensive powers to look back and investigate for four, six and 20 years retrospectively, also wide-ranging financial data to identify lost tax revenues. As such these lost funds are within HMRC’s reach. The challenge will be sufficient staff resources and the efficient use of technology.

“On the ground, we have certainly seen a downturn in compliance activity to tackle serious non-compliance, in particular the use of ‘Code of Practice 9’ to tackle suspected tax evasion. The NAO also highlight a downturn in criminal prosecutions for tax offences which are an important deterrent. This clearly is out of sync with what was happening during the pandemic years when other studies, such as the Crime Survey for England and Wales, show that fraud increased because of lockdowns and opportunist circumstances.

“HMRC has continued its work known as “upstream” which encourages voluntary disclosure. There is a proliferation of “nudge letters” or prompts sent by HMRC to existing taxpayers to correct mistakes. This compliance activity is largely relying on the goodwill of taxpayers and their advisers. While effective for some categories of people, it does not tackle those who simply are not in the tax system, or those hardened tax avoiders and evaders.”

ENDS

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