The pursuit of tax: HMRC face increased pressure to boost tax revenue

A recent report, published by the House of Commons Public Accounts Committee on 11 January, urges HMRC to increase the resources given to enforcement activities in order to reduce the amount owed in unpaid tax – which stood at an estimated £42bn in June 2022.

Whilst total tax revenues in 2021-22 were £731.1bn, an increase of £122.3bn compared to 2020-21, concern has been raised that HMRC are not doing enough to collect taxes, especially those potentially lost through fraud and error. Covid-19 support schemes and research and development tax reliefs are cited as two of the main areas particularly susceptible to these issues.

The report notes that the estimated yield from HMRC’s tax compliance activities in 2021–22 was just under £31bn, up 1.1% compared with 2020–21, but around £6bn lower than the nearly £37bn reported in 2019–20.

What is HMRC doing to deal with this?

HMRC’s outgoing head of serious fraud, Simon York, has said that HMRC is stepping up efforts to catch professional tax fraud enablers, following "dramatic changes" to the increasingly cross-border issue. This follows a pledge in November’s Autumn Statement to invest a further £79mn in HMRC over the next five years to help deal with serious tax fraud cases and to address tax compliance risks among wealthy taxpayers. However, the Chair of the Public Accounts Committee has voiced concerns that “HMRC will only employ more staff to tackle compliance over the next few years – that’s not fast enough to dent the tax gap at a time of huge public sector spending pressures”.

There has also been a recent increase in the number, and variety, of HMRC’s "nudge letter" campaigns. These letters are sent to specific groups of taxpayers (for example, landlords of UK residential property or People with Significant Control of UK companies), identifying potential errors in tax reporting and inviting the recipient to address these. This indicates that Government departments, including HMRC, are becoming more joined up in their use of data to tackle tax compliance and that additional resources may be aimed in this direction.

Finally, a Freedom of Information Act 2000 request has revealed that HMRC increased the sum collected through inheritance tax investigations by 28% in the last tax year, recovering £326m in 2021-22 versus £254m in 2020-21. Reasons cited for this include improved resources for investigations, which are increasingly being targeted at wealthy individuals (with incomes over £200,000 or assets over £2m).

Where is it all leading?

It remains to be seen how increased scrutiny on HMRC’s tax compliance efforts will play out alongside the extra funding it is due to receive in this area, as well as the public noises made about cracking down on tax fraud and evasion. It could be an interesting twelve months (or five years) ahead for HMRC, taxpayers and tax agents. Expect the tax-net to tighten.