HMRC: New Report – The State of Tax Administration
One of TruePublica’s media partners – TaxWatch has launched its annual report which seeks to provide an independent analysis of the performance of the government in carrying out the vital role of administering and enforcing the tax system.
The report draws together a number of facts and figures from various sources, including HMRC’s annual reports and tax gap reports, Freedom of Information requests, and other publicly available data. It is hoped that the report will become a valuable resource for the media, politicians and the public.
The intention is that the report will be delivered on an annual basis.
Of note in this report is that the verifiable tax gap, the annual estimate of the amount of tax lost to avoidance, evasion and criminal activity in the UK sits at around £35billion. This is in line with what HMRC estimates.
However, TaxJusticeUK reports that the tax gap, could in fact, be as high as £120billion. In addition, the City of University London published its analysis as far back as 2014 that showed the tax gap was in the region of £122billion. The tax gap matters because at £122 billion a year it is only a little less than the annual budget for the NHS. It is also big enough to cover the entire UK education budget with more than £20 billion left over.
That 2014 report estimated that tax evasion might cost the UK £85 billion a year whilst tax avoidance might impose a cost of £19 billion a year and tax not paid could result in a loss of income of £18 billion a year.
It is important to note that the resources given to HMRC since 2010 have been significantly reduced and so how they as a department have improved the tax gap is not just unclear, they themselves have reported that the tax gap has remained stable year-on-year at £33bn in 2015 through to £35bn in 2020. Perhaps that can be explained by the rate of inflation at the time!
Summary of the TaxWatch report
The United Kingdom left the European Union at the end of January 2021, just as Covid-19 was beginning to spread around the world. Brexit saw the UK leave the EU customs union, the single market, and the VAT area. This has required an entirely new system of customs arrangements for the UK, necessitating at least £1bn in investment. With the UK Government phasing in border controls on imported goods over 2021 and 2022, the burden is only increasing as time goes on.
Shortly after leaving the EU, in response to the pandemic, the UK entered a lockdown, with all but essential workers either furloughed or told to work from home. HMRC officers had to adapt to home working, all while the courts’ system was placed on a temporary hiatus, causing a significant backlog.
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HMRC was tasked with rapidly implementing large-scale coronavirus support schemes, supporting incomes as well as businesses. These schemes, while drawn up and administered quickly in order to protect jobs while the country ground to a halt, unfortunately, have seen wide-scale abuse costing billions of pounds.
The timings of Brexit coupled with the pandemic has resulted in tax administration in the UK facing a difficult task without equal in modern times, causing a huge amount of stress on the system. For that reason, HMRC’s performance over the last year inevitably looks poor.
However, our concern is that after more than a decade of cuts, and with performance already dropping on previous years, the impact of the stress of the last year could cause long term damage to the UK’s tax administration if the government does not invest significantly more funds in tackling non-compliance and improving customer service.