The pandemic has had a significant impact on the ability of HM Revenue & Customs to pursue tax evasion cases, which has resulted in a loss of £9 billion in tax revenue according to the latest data.
New figures from HMRC show that the tax authority opened 114,000 (32 per cent) fewer cases of possible tax evasion in 2020/21 than the previous year.
It also paused many ongoing enquiries, which has led to a significant reduction in the number of prosecutions.
While it would be nice to think that this was because of greater compliance, one of the main reasons for this decline in activity has been the redeployment of HMRC personnel.
During the pandemic, many compliance officers were transferred to other teams to handle covid support grant schemes.
While 4,200 additional compliance staff have been hired since the pandemic, it takes up to four years to train them due to the complex nature of tax legislation and investigations, resulting in a shortfall of expertise.
As a result of this disruption, and the subsequent cost of living crisis, the actual size of the tax gap is highly uncertain, and levels of non-payment are rising.
In fact, during the two pandemic years, compliance yield per staff member fell from £1.3 million a year to £1.1 million.
For HMRC, it is essential to ensure that increased levels of non-compliance are tackled quickly and before the window closes for investigating cases.
MPs on the Public Accounts Committee have stated that HMRC should develop a better understanding of the deterrent effect of its compliance work, for example, by monitoring the future revenue benefit of prosecutions compared to those it decides not to prosecute.
For taxpayers, news that HMRC isn’t quite effective as it once was, shouldn’t reduce the importance of tax compliance or the benefits of having Tax Investigation insurance.
Despite the decline in HMRC’s staffing, it has recently launched a number of campaigns that are seeking the repayment of underpaid tax, including an increase in ‘nudge letters’ to certain groups of taxpayers.
If you are concerned about your personal tax compliance or would like to learn more about our tax investigation services, please contact your Seymour Taylor representative today or email email@example.com or call 01494 552100.
This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 19 June 2023.