HMRC Recovers 8.5 Billion in Evaded Taxes

December 22, 2010 Taxation in UK

PW003-19A new report is praising the British tax authorities for its recent performance in conducting investigations on taxpayers alleged of carrying out tax evasion and fraud.

Last week the UK National Audit Office (NAO), an independent body responsible for auditing the accounts of all UK government departments, released the results of a new study into the HM Revenue & Customs’ (HMRC) procedures and effectiveness of conducting tax fraud investigations. It was shown in the report that since the 2007-2008 financial year, the HMRC has greatly improved its results in retrieving tax revenues originally lost due to tax evasion.

During the 2009 – 2010 fiscal year the HMRC investigations into tax evasion led to the recovery of GBP 8.5 billion, a 49 percent improvement over the 2007 – 2008 period. The achievement was underlined by the fact that the HMRC also decreased their annual real-term costs by 10 percent over the same time, to a level of GBP 567 million. The NAO also acknowledged that the department has been carrying out additional tax compliance improvement projects which have raised national tax revenues, decreased occurrences of tax evasion and positively influenced taxpayer behavior. However the monetary effect of these endeavours was deemed impossible to quantify. The HMRC expects that over the next calendar year it will implement several new performance measurement tools, which will provide information on the effectiveness of future tax compliance programs.

Despite the HMRC’s recent successes, the NAO still pointed to some shortcomings in their performance. In particular, the system used to refer investigation cases to specialized teams and third-parties was considered to be inefficient, as it is slow, cumbersome and suffers from cases miscommunication of pertinent information. It was also claimed in the report, that the HMRC currently has inadequate measures to follow-up on the payments resulting from their investigations. Additionally, the HMRC needs to clarify the penalties applicable to instances of tax evasion and fraud. The issue of time-frames for investigations was also raised by the NAO, especially in cases of serious fraud. According to the report, the HMRC currently takes an average of 25 months to complete a high-worth tax evasion investigation, although its own internal target is only 18 months.

Amyas Morse, head of the NAO, commented on the report and the HMRC’s performance, saying, “HM Revenue and Customs is taking significant steps towards achieving value for money in its civil investigations of suspected tax fraud or evasion. It has further to go, especially in its understanding of the relative costs and returns of its different enforcement activities, including civil investigations, and their wider impact on taxpayer compliance and behavior. Progress here would inform decisions on how to deploy resources to best effect.”

Photo by Lloyd Davis