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Tax avoidance and non-compliance have cost the government £9bn during the pandemic, a Whitehall spending watchdog has found.
According to the National Audit Office, the loss of the public purse led HM Revenue and Customs (HMRC) to move thousands of tax compliance staff to the Covid Support Scheme, reducing its ability to investigate people and businesses who are not paying the right amount.
The NAO said around 1,350 workers were redeployed to covid schemes during 2020-2021, a 12% reduction in the number of people working on tax compliance.
Before the pandemic, tax revenue from HMRC’s compliance work averaged 5.2% of its total revenue. This falls to 4.2% between 2020-2022 – a reduction of £9bn.
During the pandemic, HMRC paused many inquiries for suspected non-compliance, except in cases of possible fraud or criminal activity, closing 29% fewer cases in 2020-21 than the previous year. The lockdown also meant that the department carried out fewer individual checks.
As many courts were not functioning at that time, criminal prosecutions for tax-related offenses fell to 163 in 2020-21 from around 700 in the previous year.
Rather than returning to normal levels after the pandemic, HMRC analysis suggests that the tax gap – the difference between what the department owes and what it receives – is likely to continue to widen over the next few years.
While the department is recruiting and training new compliance staff, they will be less experienced and therefore less effective in the short term, according to the watchdog, which called on HMRC to improve the effectiveness of its compliance work to ensure more money is available for cash. . – Striped public services.
Gareth Davies, head of the NAO, said: “HMRC had to move quickly to reallocate resources to the Covid-19 schemes, as the circumstances of the pandemic demanded. However, this directly affects its ability to investigate cases of people and businesses not paying the correct taxes.
“There is now a risk that more people will eventually fail to pay the correct tax or escape investigation or prosecution. It is concerning that HMRC’s planning suggests that non-compliance may increase after the pandemic. The next two years are crucial, and the potential damage is to be prevented. Urgent action is required.
“There is little doubt that HMRC’s compliance work provides good value for money, but it needs to assess its performance more consistently. Improving the effectiveness of HMRC’s compliance work can help maximize the amount of money available for public services in a challenging economic context.”
Meg Hillier MP, Chair of the Commons Public Accounts Committee, said: “HMRC must step up its work on tax compliance by allocating sufficient resources and better understanding the effectiveness of its work. With significant pressure on public finances, there is no time to lose.”
A spokesman for HMRC said: “We welcome the NAO’s confirmation that our compliance work provides good value for money. By doing so, we target areas where there is the highest risk of non-payment of tax and prioritize the highest-value returns – which taxpayers would expect.
“This does not mean other money will not be collected, however, and we can go back as far as 20 years in the most serious cases of evasion. We are adding another 2,500 people to our compliance workforce next year, increasing our ability to recover unpaid taxes. We are staying and will make sure everyone pays what they owe.”
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