Last week, HMRC released its annual report, which is worth a read. It covers topics such as tax revenue, decrease in tax gaps, shortcomings in customer service and efforts to ensure accurate tax payment. The CEO’s review discusses investment in compliance officers and emphasis on tackling fraud. As a result, HMRC plans to increase the number of tax investigations it conducts.
The report by HMRC starts with an introduction about their organisational structure, followed by a discussion on their revenue. They managed to collect an impressive £814 billion in tax revenues last year, out of which £34 billion was the result of their efforts in curbing avoidance, evasion, and non-compliance. It’s a significant amount of money! When you think the Defence budget in 21-22 was £42.4 billion (UK government statistics).
Closing the UK tax gap
According to the report, HMRC has successfully reduced the UK’s tax gap over the years. The tax gap refers to the difference between the amount of tax that should be paid to HMRC and the actual amount collected. In 2005/2006, the tax gap was at 7.5% of total theoretical tax liabilities, but it has decreased to 4.8% in 2021/2022.
To ensure that everyone pays their fair share of taxes, HMRC has a compliance strategy consisting of three key elements:
- preventing non-compliance,
- promoting good compliance,
- responding firmly to those who violate the rules.
In the financial year of 2022/23, HMRC was able to generate a compliance yield of £34 billion, which refers to the amount of money that would have been lost to the government if not for HMRC’s compliance efforts.
Although this figure falls short of their target for the year, it is still higher than the compliance yields of the previous two years. The chief executive wants to make sure the tax gap is kept in check and that’s why we think there will be an increase in the number of tax investigations.
You can read the HMRC full annual report if you want to find out more.
What HMRC has failed at
According to the report, HMRC didn’t meet several crucial customer service metrics in the tax year 2022/23.
Their customer satisfaction rate decreased from 82% to 79% last year, whilst their phone performance has also declined. On average, it took 16 minutes for a caller to connect with an advisor, and 63% of callers waited for more than 10 minutes, with an average wait of over 20 minutes in the first quarter of 2023.
However, it’s worth noting that HMRC has improved their response time for correspondence; they cleared 73% of their responses within 15 days, up from 46% in 2021-22.
HMRC thinks the solution lies in the use of online services by taxpayers and wants to reduce the volume of contact by telephone and post by 30% before 2025. They will be focusing on their App over the coming years.
But the record of HMRC in the past when it comes to technology is not good. So let’s wait and see.
What happens if you get a tax investigation?
Over the past 15 years, following the 2008 “Crash,” the recession that ensued, and the pandemic, the UK National Debt has climbed to a concerning 101.7% of the Gross Domestic Product. To aid in addressing this issue, HMRC has been assigned the responsibility of intensifying its efforts to recover as much tax as feasible and narrowing the tax gap even more.
It appears that HMRC is dedicating more resources to conducting tax investigations, which may be due to recent investments made in its IT infrastructure and employee numbers. We are therefore expecting to see an increase in the number of tax investigations.
It is worth noting that HMRC looks favourable towards those taxpayers who employ an Accountant to deal with their compliance. So if you are submitting your own accounts and tax return, give it a second thought and see if you should employ a professional
Although as a practice we have not seen many investigations when it comes to our clients, many UK businesses are seeing them. An increasing number of businesses in the UK are being chosen for random investigations, including sole traders who are also under scrutiny for their accounts.
So, what can you do if you are one of those chosen ones? The investigation could be a simple check (an aspect inquiry) to a full inquiry which can take hours and can be costly.
Many of our clients protect themselves from the costs of an HMRC investigation with Fee Protection Insurance. Tax fee protection insurance can save you from the unexpected costs of having your business accounts investigated.
HMRC investigations can run into thousands of pounds in costs. Having fee protection in place gives you the reassurance that your accountant’s costs in dealing with the investigation will be covered.
If you do not have an accountant, you will not have access to investigation insurance. This means that you cannot protect yourself against any costs related to professional advice if your case is selected by HMRC.
If you are a client and have not taken out the insurance cover have another think. Email Katharine Wilson in the first instance at firstname.lastname@example.org and she’ll be able to help you.
You may have concerns about your tax affairs, business or personal please in which case email your normal manager at Myers Clark. If an error or omission has been made, it is always better to go to HMRC first. It works out much better when it comes to fines and penalties.
If you are not yet working with us here’s how we can help you with your tax