Fewer HMRC investigations cost the Treasury billions in lost revenue

According to a study by the National Audit Office (NAO), tax dodging and non-compliance during the pandemic cost the Government £9 billion.

The NAO found that a sharp fall in investigations by HM Revenue & Customs (HMRC) was caused by workers being redeployed to Covid schemes, shrinking the number of those working on tax compliance by 12 per cent.

Before 2020, tax revenues from HMRC’s compliance work were, on average, 5.2 per cent of its total revenues.

However, this dropped to 4.2 per cent between 2020-2022. In addition, lockdowns meant there were far fewer in-person investigations over that time.

The number of criminal prosecutions fell from 700 in 2019/20 to just 163 the following year, while HMRC investigated around 30 per cent fewer compliance cases over the same period.

As a result of this, the NAO report shows that only £7.5 billion was recouped in tax revenue over the past financial year through enquiries, and £1.5 billion in 2020/21.

HMRC is now under pressure to improve the effectiveness of its compliance work to ensure more money is available for cash-strapped public services.

The Head of the NAO, Gareth Davies, pointed out that there is now a risk that more people fail to pay the correct tax or escape investigation or prosecution. He added that the next two years are critical and that “swift action is likely to be needed to stem potential losses”.

In response, a spokesperson for HMRC said that they are adding a further 2,500 people to its compliance workforce next year, increasing its ability to recover unpaid tax.

Commenting on the decrease in investigations, Roger Isaacs, Forensic Partner at Milsted Langdon, said: “The fallout from the pandemic is still clearly being felt by HMRC, but it would seem that it has recognised this issue and is deploying additional resources now to crackdown on tax evasion and avoidance.

“However, the new recruits will take time to train and in the interim, the NAO report seems to suggest that the UK has seldom been more vulnerable to tax evasion.

“The pressure on resources within HMRC means that its focus is likely to be on the largest and most serious cases where prosecution is now only one of several available options. Other remedies including Confiscation Proceedings or Unexplained Wealth Orders are more often now being considered as these place the burden of proof on those accused. In those cases forensic accountancy evidence typically plays a pivotal role. ”

Source(s): The Times

Posted in The Forensic Blog.