The UK tax authority is missing out on billions of pounds of tax revenue because of a “failure to better resource compliance” and is delivering an “unacceptable” service, according to a cross-party group of MPs.
In a highly critical report on Wednesday, the House of Commons public accounts committee (PAC) said the amount of tax that was owed but went unpaid in the UK rose to £42bn in 2021-22, up from £32bn the previous year.
The total sum collected by HM Revenue & Customs rose to £731bn last year, leaving the tax gap — defined as the difference between money owed and paid — steady year on year at about 5 per cent.
However, the PAC warned that “HMRC is still not deploying the resources required to maximise the tax revenues it collects or provide an acceptable level of customer service”.
For every £1 the agency spends on attempts to recover taxes, it recoups £18 in tax revenue, with the marginal rate of return diminishing as funding increases.
Dame Meg Hillier, who chairs the committee, said: “The eye-watering £42bn now owed to HMRC in unpaid taxes would have filled a lot of this year’s infamous public spending black hole.”
The PAC said it had asked HMRC to set out how much investment its compliance teams would need to reduce the size of the tax gap and to confirm whether it intended to boost spending in that area.
The agency at present bases its resourcing on preventing the tax gap from growing, rather than on shrinking it.
The committee also found taxpayers and their agents suffered “unacceptable” service levels, with HMRC at times simply closing its phone lines when unable to cope with demand.
In the past five years, HMRC has reduced its customer service team from 25,500 to 19,500 workers. Harriett Baldwin, chair of the Treasury select committee, this week wrote to the agency following reports of waiting times of “several hours” ahead of the deadline for self-assessment tax returns on January 31.
Susan Ball, president of the Chartered Institute of Taxation, a professional body, said: “Our members tell us every day of the delays they face getting answers and action from HMRC — and the impact this is having on businesses and individuals.”
She added that the government appeared “to have cut staff numbers anticipating efficiencies and time savings from digitalisation that have not yet arrived”.
In its report, the PAC asked HMRC to lay out its plan to raise customer service to adequate levels as soon as possible.
The committee also said HMRC’s plan to recover only one-quarter of losses resulting from fraud and error in its Covid-support schemes “does not go far enough”.
The agency estimates that total error and fraud across the lifetime of the coronavirus job-retention scheme, self-employed income support scheme and “eat out to help out” schemes is £4.5bn, representing 4.6 per cent of the total support provided via those three schemes.
In spring 2021, then chancellor Rishi Sunak announced additional funding of £100mn for HMRC to probe fraud and error on the schemes. The PAC report said the authority had so far opened about 40,000 investigations, through which it expects to recover £1.1bn.
HMRC said: “Since 2005 we have cut the UK’s tax gap by more than 30 per cent, and we continue to prioritise collecting unpaid taxes.”
The agency added that “the Covid support schemes protected millions of jobs and businesses” during the pandemic and that it had “minimised fraud through compliance checks and . . . protected £1.2bn so far”.
