HMRC, in an effort to reverse a sharp decline in tax revenue, has been bolstering its compliance department. New data reveals that the tax office has added over 3,000 more staff to its compliance division since the 2021/22 financial year. However, experts caution that this expansion may have limited benefits for business owners
A recent report by the Public Accounts Committee discovered that tax revenue from HMRC's compliance work had dropped from an average of 5.2 percent before the pandemic to 4.2 percent in 2021-22, marking the lowest level in over a decade. This decline has resulted in a £9 billion reduction in tax revenue over the past two years, primarily due to fraudulent use of Covid schemes.
The report also noted that HMRC's compliance staff's productivity was hampered by social distancing restrictions and the loss of experienced personnel. Despite these challenges, the tax office has been actively working to strengthen its compliance team.
According to data obtained by accountancy firm Price Bailey, HMRC has hired 3,084 more staff for its customer compliance unit since 2021/22, representing a 12 percent increase in just one year. The number of staff in the three highest grades, typically more experienced in compliance, has risen from 3,197 to 3,541 over the same period.
Furthermore, the data indicates that the Fraud Investigation Service, an elite unit within customer compliance, has added 539 staff in the past year, bringing the total to 4,925. These recruited staff are expected to be experienced tax professionals from the private sector, leading complex tax investigations.
Andrew Park, a partner at Price Bailey, emphasizes that the drop in compliance activity has undermined HMRC's deterrent effect, but the significant increase in staffing levels suggests a surge in targeted investigations in the coming years.
Despite the recent expansion, some question its impact. The decision to boost the compliance team while simultaneously closing certain customer service helplines has raised concerns. Small business owners have endured long waits for assistance in recent months, highlighting challenges in accessing support.
Heather Rogers of Aston Accountancy suggests that anti-money laundering and a focus on inheritance tax errors are likely priorities for HMRC. She anticipates more routine inquiries for businesses, advising that well-organized affairs will face fewer concerns.
Rogers also raises concerns about HMRC's approach, stating that it should work with individuals and businesses rather than against them. She believes that heavy penalties should target those involved in fraud and tax evasion rather than those attempting to comply.
In summary, while HMRC's efforts to strengthen its compliance team are expected to result in increased enforcement activity, some experts and observers express reservations about the impact on customer service and the need for a balanced approach to tax compliance.