NAO Reports On HMRC's Response To Tax Fraud

by Robert Lee, Tax-News.com, London

22 December 2015

The National Audit Office (NAO) has said that the UK loses an estimated GBP16bn to tax fraud each year and HM Revenue and Customs needs to improve the way it uses data and analysis to understand the effect of its actions in this area.

According to a new report by the NAO, HMRC has met its target to raise more revenue in the short-term but must now consider whether its overall strategy is designed to achieve the best long-term results. In 2014-15, HMRC reported GBP26.6bn (USD39.7bn) in additional revenue from all its compliance work. However, HMRC has only partial data on how much of the total yield is derived from its work to counter tax fraud, and the NAO said that HMRC has more complete information on its work to tackle organized crime than tax evasion. The NAO estimated that between 30 and 40 percent of the total compliance yield is generated by anti-fraud activities.

The NAO noted that HMRC has met its target to increase prosecutions by 1,000 a year by 2014-15. It is increasingly focusing on less complex cases, and pursuing prosecutions for those who have evaded income tax, value-added tax, and tobacco duty. The NAO said that HMRC recognized that it needs to prosecute cases that more closely correspond with its analysis of tax fraud risks.

The NAO added that HMRC must do more to understand the benefits derived from increasing the number of prosecutions. In 2014-15, HMRC claimed GBP295m in yield from the deterrent effect of its 1,000 additional prosecutions. Yet when it evaluated the deterrent effect of these prosecutions in 2015, it was unable to verify their monetary value. HMRC research highlighted an increased awareness of prosecutions, but was unable to find evidence that they led to changes in behavior or increases in tax revenue, the NAO said.

Amyas Morse, Head of the NAO, said: "We will be evaluating HMRC's performance in tackling different types of fraud in more depth. As we do so, we will be looking for further improvements in the way HMRC uses data and analysis to understand the effect of its actions in both the long- and short-term."

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