As published on: thisismoney.co.uk, Friday 22 September, 2023.
HMRC has been bolstering its compliance department in a bid to reverse a sharp decline in tax revenue, This Is Money can reveal.
New data reveals the tax office has added over 3,000 more staff to its compliance division since the 2021/22 financial year, but experts warn this will do little to help business owners.
A report by the Public Accounts Committee earlier this year found that tax revenue from HMRC's compliance work had fallen from an average of 5.2 per cent before the pandemic, to 4.2 per cent in 2021-22.
It marks the lowest level for over a decade, and means the tax office has taken £9billion less over the past two years, in large part due to the fraudulent use of Covid schemes.
It also found that HMRC's compliance staff were 'less productive due to social distancing restrictions and the loss of more experienced staff.'
But it seems the tax office has been trying to strengthen its compliance team.
Data obtained by accountancy firm Price Bailey found that HMRC has recruited 3,084 more staff to its customer compliance unit since 2021/22. It marks a 12 per cent rise in a single year.
Andrew Park, partner at Price Bailey, said: 'The drop off in compliance activity is undermining the deterrent effect of HMRC's work.
'There is growing pressure on HMRC to catch up on compliance activity and this hefty increase in staffing levels suggests that the number of targeted investigations should significantly rise in the coming years.'
The number of staff working in the three highest grades, meaning they are likely to be more experienced in compliance, has grown from 3,197 to 3,541 since 2021/22.
The data also shows that the number of tax inspectors in the Fraud Investigation Service, an elite unit which sits within customer compliance, has added 539 staff in the last year, bringing the total to 4,925.
Price Bailey says that recruited staff are 'likely to be experienced tax professionals from the private sector and will lead complex tax enquiries.'
'It is reasonable to expect a lag between being allocated additional resources and seeing them bear fruit,' said Park.
'HMRC now has significantly more compliance resources than before the pandemic so it is difficult to see how HMRC can fail to return enforcement activity to pre-pandemic levels and beyond over the next one or two tax years.'
A spokesman for HMRC said: 'Our job is to collect the tax people owe. This investment will further enhance our ability to tackle fraud and ensure fairness in the tax system.'
Compliance is essential to HMRC's work and ensuring taxpayers are paying the right amount of tax. Park says it 'is in everyone's interest that HMRC tackles non-compliance and it now has many more staff for that purpose.'
But what will this mean for small businesses and should they expect further scrutiny of their affairs?
We asked This Is Money's resident tax expert Heather Rogers of Aston Accountancy about her views on where HMRC will be directing its attention in the coming months.
Anti-money laundering is likely to be high on the agenda, as its a core focus for the Fraud Investigation Service. She also anticipates more of a focus on inheritance tax errors following reports that the tax office handed out £2.3million worth of penalties following incorrect valuations.
Park says: 'In practice, the average business is going to get investigated more often… there'll be fairly routine enquiries. If your affairs are in order, you've got a lot less to worry about.'
The decision to bolster its compliance team while simultaneously closing some of its customer services helplines will raise some eyebrows.
While the self-assessment helpline has now reopened, This Is Money has written extensively about the long waits business owners have had to face in recent months.
We recently highlighted a case in which a reader was handed a bill of £38,000 by HMRC, only to discover it was a typo. He was then told he could only contact HMRC by post.
Staffing levels in the customer services departments have continued to fall - the average number of staff has fallen from 25,500 to 19,500 in five years.
Rogers says: 'It's ironic really, that with its current poor service and recent signing of a 5 year IT contract to further develop its digital services to make them the first point of contact businesses and the public have with it, it doesn't seem interested in prevention and helping people get it right.
'In the old days with local offices, the local inspectors knew the businesses and the accountants: the good and the less organised, shall we say and this helped with compliance.
'Now, it's a huge, unwieldy and inefficient government machine which thinks technology is the answer followed by heavy hitting on businesses and individuals, many of whom are trying their best.'
She adds: 'HMRC needs to work with individuals and businesses not against them; those who commit fraud and tax evasion deserve heavy penalties and this is the area they need to focus on, as well as those who are wilfully assisting Money Laundering.
'However, it does feel that HMRC are on a 'revenue raising' trip and taking the same attitude towards those that are just trying their best to get it right.'
Similarly, Park believes the move will do little to improve customer services: 'It's good for the Treasury but not for anybody who needs help from HMRC.'