Bold plan to cut tax gap mustn’t ignore those trying to comply

The Chancellor announced a £1.4bn investment over the next five years to recruit an additional 5,000 HMRC compliance staff, with additional revenues of over £6.5bn over this period. 

Ellen Milner, CIOT Director of Public Policy, said:

“This is a bold, billion-pound bet on tackling the tax gap, but the additional revenue estimates are ambitious and taxpayers can be forgiven for wondering whether they will be delivered. 

“In recent years the tax gap has grown in absolute (albeit not in percentage) terms, and the illegal behaviours which HMRC define as evasion, hidden economy and criminal attacks have proven difficult to tackle. This investment is a clear indicator that the government will not tolerate this sort of non-compliance.  

“However, almost half of the tax gap relates to taxpayers not getting things right through what HMRC categorise as either error or a failure to take reasonable care. And there appears to be little in the Budget to address this. 

“The estimated income from this additional compliance activity is massive – over £2.7bn a year, or around 7% of the current tax gap, by 2029-30, and only time will tell whether these estimates are overly-optimistic.” 

The Chancellor also announced £262m over the same period to fund 1,800 HMRC debt management staff, while increasing the interest rate on unpaid tax from April 2025. These two measures are forecast to raise £8.5bn between now and 2029-30. 

Ellen Milner said:

“These measures make it clear that HMRC do not consider themselves a bank, so are ramping up their collection efforts and increasing the cost of owing the money in the meantime. 

“While we recognise the government’s intentions to minimise the tax liabilities owed to it, the playing field has been further sloped in HMRC’s favour, as no equivalent rate increase is being made to money owed by HMRC.  

“The position is further exacerbated in VAT, whereby equivalent amounts owed to and by HMRC in relation to the same transaction will now come at an even greater cost to the taxpayer as HMRC no longer has the discretionary powers to waive interest where there is no net loss to the Exchequer.” 

No additional investment in HMRC customer services provision was announced by the Chancellor, instead the Budget documents signpost previous funding commitments and steps taken towards improving customer service and modernising and reforming HMRC. 

 Ellen Milner said:

“We remain concerned that, in a Budget about fixing the foundations, no additional investment has been made to underpin the commitment to improve HMRC’s customer service. Our own research tells us that whilst recent investment may have improved connection rates to helplines, there is much to do to improve HMRC customer service, including the resolution of queries, while it continues to have a detrimental impact on the tax system as a whole, the ability to do business and the wider economy.  

“It is also making it difficult for those who want to be compliant to be so, through registering and paying their taxes on time, or claiming the reliefs or repayments to which they are entitled. We believe that poor customer service from HMRC, coupled with other factors such as inadequate guidance, are contributors to the high levels of mistake which form nearly half of the tax gap.” 

Notes for editors: 

1. The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC each year, and what is actually paid. It includes all taxes within HMRC’s administration and collection powers, but not the devolved taxes which are administered and collected by the devolved tax authorities, nor estimates of error and fraud in research and development tax reliefs.  
2. In 2022-23, the latest published figures, the tax gap was £39.8 billion. This represents 4.8% of total theoretical tax liabilities ie the total amount that was due to HMRC in that year. 
3. More information on the tax gap can be found in the CIOT explainer https://www.tax.org.uk/tax-avoidance-tax-gap-explainer  
4. The latest published tax gap figures can be found at https://www.gov.uk/government/statistics/measuring-tax-gaps