The British tax authority has lost billions of tax revenue because of “failure to better resources” and deliver “unacceptable” services, 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 owed but not paid in the UK would rise to £42bn in 2021-22, up from £32bn the previous year.
The total amount collected by HM Revenue & Customs rose to £731bn last year, leaving the tax gap – defined as the difference between what is owed and what is paid – to remain annually at around 5 per cent.
However, the PAC warned that “HMRC is still not using the resources it needs to maximize the tax revenue it collects or provide an acceptable level of customer service”.
For every £1 the agency spends trying to recover tax, it recoups £18 in tax revenue, with the marginal rate of return reduced as funding increases.
Dame Meg Hillier, who chairs the committee, said: “The £42bn debt HMRC currently owes in unpaid tax will fill the public unpaid black hole this year.”
The PAC said it had asked HMRC to determine how much investment its compliance team would need to reduce the size of the tax gap and confirm that it was aiming to increase spending in the area.
The agency is now devoting resources to preventing the tax gap from growing, rather than reducing it.
The committee also found taxpayers and their agents were experiencing “unacceptable” levels of service, with HMRC sometimes simply closing the phone line when they were unable to resolve requests.
In the past five years, HMRC has reduced its customer service team from 25,500 to 19,500 employees. Harriett Baldwin, chair of the Treasury’s selection committee, this week wrote to the agency following reports of waiting times of “several hours” before 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 about the delays they face in getting answers and action from HMRC – and the impact it has on businesses and individuals.”
He added that the government appears to be “dismissing the number of staff expecting efficiencies and time savings from digitization that have yet to arrive”.
In its report, the PAC called on HMRC to come up with a plan to raise its customer service to an adequate level as soon as possible.
The committee also said HMRC’s plan to recover only a quarter of its losses due to fraud and error in the Covid support scheme “doesn’t go far enough”.
The agency estimates that total errors and fraud in the coronavirus job retention scheme, independent income support scheme and “eat to help” scheme is £4.5bn, which represents 4.6 per cent of the total support provided through them. three schemes.
In spring 2021, Chancellor Rishi Sunak announced an additional £100 million in funding for HMRC to investigate fraud and error in the scheme. The PAC report says authorities have now opened around 40,000 investigations, which it expects to recover £1.1bn.
HMRC said: “Since 2005, we have reduced the tax gap in the UK by more than 30 per cent, and we continue to prioritize collecting unpaid tax.”
The agency added that the “Covid support scheme protected millions of jobs and businesses” during the pandemic and “reduced fraud through compliance checks and . . . protected £1.2bn to date”.