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HMRC’s scrutiny of major cases of suspected tax evasion and fraud is generating significantly increased returns while reducing expenditure, according to a new report.
The document published today by the National Audit Office (NAO) recognises the improvement in performance by the Revenue’s two civil investigations directorates, which has increased the additional tax generated from their work by 49% in real terms since 2007-08 to £8.5 billion.
In the same period, the cost of resources, when adjusted for the effect inflation, has fallen by 10% to £567 million.
While applauding HMRC for the year-on-year improvement in yield, the NAO’s paper highlights the department’s failure to encapsulate the full impact of its civil investigations and other enforcement work: ‘Yield provides a firm measure of the value of investigation work, but used alone it does not capture the full impact of investigations, such as the effect on taxpayer behaviour, nor does it encourage preventative work to improve compliance.’
The Revenue is planning to introduce a broader range of metrics in 2011, to better assess the impact of its enforcement activities.
The new report also points out that, while HMRC are making progress in understanding their performance and managing enforcement resources, the department does not have all the management information necessary on the cost-effectiveness of its different types of enforcement activity and their wider impact.
The NAO is critical, too, of the Revenue’s failure to gain a clear picture of the penalties imposed on civil investigations, and of the system for escalating cases for investigation, which has yet to be fully effective.
Among the office’s recommendations are that the system for referring cases for investigation be improved, that the time taken to complete investigations be reduced, that a clearer picture be developed of the penalties imposed on those found to have evaded or defrauded tax, and that it be made easier to trace whether tax debts from completed investigations have been paid in full.
The Revenue could not trace whether payment had been received on 27% of outstanding tax due from civil investigations of fraud passed for collection in 2008-09. Of the £58 million that could be traced, 84% had been collected.
By 2009-10, the average time of civil investigations was 25 months, longer than the internal target of 18 months, while 15% of cases had taken more than three years.
NAO head Amyas Morse remarked, ‘HMRC are taking significant steps towards achieving value for money in their civil investigations of suspected tax fraud or evasion.
‘The department 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 behaviour. Progress here would inform decisions on how to deploy resources to best effect.’
