Today TaxWatch publishes our latest State of Tax Administration Report, analysing data from the HM Revenue & Customs (HMRC) Annual Report and Accounts and Freedom of Information requests for the 2023-24 year. The report highlights many of the challenges faced by HMRC, including falling staff numbers and problems with staff retention, causing poor customer service and ongoing tax compliance issues.
In 2023-24 HMRC collected more tax than ever, totalling £834.4 billion, at a cost of £5.5 billion. The report demonstrates that for every £1 invested in HMRC in compliance, the return is in the region of £17. However, the current CEO of HMRC Sir Jim Harra, who will step down in early 2025, admitted during the year that HMRC did not have the resources necessary competently fulfil its role as tax administrator and collector.
Despite hiring an additional 1,000 extra staff, blowing their budget by £36 million, callers to HMRC waited an average of 23 minutes to speak to an advisor, with millions unable to get through at all.
The department’s staff has shrunk in the year, with experienced workers leaving faster than they can be replaced. The new Labour government has promised to invest in HMRC, pledging an additional 5,000 new HMRC staff, including recruiting 500 new ‘tax professionals’ in 2024-25. However, the inability to retain staff, and the time it takes to train new recruits, undermines efforts to boost HMRC’s workforce to cope with the demands of compliance and customer service.
In order to reduce the tax gap and ensure that taxpayers pay what is due HMRC needs experienced and knowledgeable staff, who are paid well and given the tools to do their job. On the basis of a very positive return on compliance of £17 for every £1 invested that HMRC achieved in 2023-24 it is therefore a political decision as to whether the government wants to invest in HMRC, for the long term, to ensure that it is properly resourced to fulfil its role.
Although HMRC scored a great success in the Bernie Ecclestone case, netting £650 million in taxes, interest and penalties, simple mistakes and errors in Tribunals have cost millions in lost tax revenues, highlighting the need for a review of HMRC’s compliance processes to identify where things are going wrong.
Worryingly, the number of enquiries and criminal investigations opened and closed during the year continues to fall, as HMRC’s approach is ever more focussed on passive ‘nudge letters’ where large groups of taxpayers are written to asking them to confirm they have their affairs in order. It’s hard to avoid the conclusion that this approach is a symptom of under resourcing and degrading tax technical skills with cutbacks to professional training.
Claire Aston, Director of TaxWatch reflects on the findings of the report, “We argue for a strong and capable HMRC, which is fully resourced, willing and capable of using all its powers to ensure the right amounts of tax are paid. Unfortunately, our report highlights that HMRC is falling short in its customer service and on ensuring compliance with tax laws.”
“Basic procedural slip ups, and lack of use of some of HMRC’s recent criminal powers undermine the deterrent effect and make it harder for the department to collect the revenue due. The Government must recognise the vital importance of HMRC to the UK public finances and invest appropriately to restore confidence and ensure its success. At the same time, HMRC must look to address its retention issues, improve tax technical skills and deliver on its customer service promises. It is fair to say that whoever succeeds Sir Jim Harra, has a tough job on their hands”.
Our full report can be found here
