UK Inquiry Tracker

Tax evasion in the retail sector

Public Accounts Committee Closed Inquiry

Opened: 31 Oct 2024 Closed: 3 Apr 2025 Parliament page

HMRC estimates that £5.5bn of tax was lost due to evasion in 2022-23. This is equivalent to 0.7% of total theoretical tax liabilities, and is most prevalent among small businesses. Of these estimated evasion losses, 81% come from small businesses including companies, partnerships and sole traders. This has risen from … Read more HMRC estimates that £5.5bn of tax was lost due to evasion in 2022-23. This is equivalent to 0.7% of total theoretical tax liabilities, and is most prevalent among small businesses. Of these estimated evasion losses, 81% come from small businesses including companies, partnerships and sole traders. This has risen from 66% of losses in 2019-20. These losses prevent a level playing field between businesses by giving evaders an unfair competitive advantage, and deprive the public purse of its revenue. The National Audit Office (NAO) reported in 2024 that tax evaders can easily exploit government systems. Significant weaknesses remain around making fraudulent company registrations more difficult, with gaps in checks around online retailers. VAT non-compliance by overseas retailers selling goods and services online resulted in estimated losses of around £700m, according to the report, of which around £300m was deliberate evasion. The Committee has long scrutinised HMRC’s work to tackle tax non-compliance, evasion and fraud. The Committee warned in 2017 that British businesses were being hit hard by illegal tax practices in its report on tackling online VAT fraud and error , while its report on managing tax compliance following the pandemic called on the tax authority to ensure for it never to be easier to cheat the tax system than to comply with it. Based on the 2024 NAO report, the Committee will hear from senior HMRC and Treasury officials on subjects including: - HMRC’s strategy to tackle tax evasion in retail; - Reducing risks of tax evasion; and - How effectively HMRC responds to different methods of tax evasion in retail. Please note the Committee is unable to assist with individual cases. Please look at the requirements for written evidence submissions and note that the Committee cannot accept material as evidence that is published elsewhere. If you have evidence on these issues please submit it here by 23:59 on Thursday 05 December 2024. Show less

10 Recommendations

17 Conclusions

1 Report

1 Oral session

4 Letters

1 Event

Activity timeline 8 events

6 May
2025

Report published

Treasury minutes: Government response to the Committee of Public Accounts on the Ninth report from Session 2024-25

12 Feb
2025

Report published

9th Report - Tax evasion in the retail sector

27 Jan
2025

Correspondence

Letter from the Chief Executive and First Permanent Secretary of HM Revenue and Customs relating to the oral evidence session held on 16 De…

17 Dec
2024

Correspondence

Letter from the Registrar of Companies at Companies House relating to the briefing on the inquiry into Tax evasion in the retail sector, 13…

17 Dec
2024

Correspondence

Letter to the First Permanent Secretary and Chief Executive of HM Revenue and Customs relating to the Accounting Officer Assessments for th…

16 Dec
2024

Oral evidence

Oral evidence session

16 Dec
2024

Correspondence

Letter to the Chief Executive and Registrar of Companies at Companies House relating to the inquiry into Tax evasion in the retail sector, …

16 Dec
2024

Formal meeting (oral evidence session) · Room 8, Palace of Westminster

Committee event

Oral evidence sessions 1 session

16 Dec 2024

View on parliament.uk

Dean Beale · The Insolvency Service Louise Smyth · Companies House Penny Ciniewicz · HMRC Sir Jim Harra · HMRC

Reports 1 report · click to expand

Title	HC No.	Published	Items	Response
9th Report - Tax evasion in the retail sector	HC 355	12 Feb 2025	27	Responded

Recommendations & Conclusions

14 results

2 Recommendation Accepted

9th Report - Tax evasion in the re…

Establish a clear strategy for HMRC to tackle tax evasion and deliberate non-compliance with objectives.

Despite significant lost revenue, HMRC does not have a clear objective or strategy to tackle tax evasion. Rather than a separate strategy to tackle tax evasion, HMRC has an overall compliance strategy which it applies to errors and carelessness as … Read more

Government Response

The government agrees and will set out its approach for tackling deliberate non-compliance, including tax evasion, by March 2026. This approach will follow the 'Prevent, Promote, Respond' strategy, detailing measures to support businesses and tackle non-compliance, building on existing investigation work.

HM Treasury

View details

3 Conclusion Accepted

9th Report - Tax evasion in the re…

Develop a joint plan for HMRC, Companies House, Insolvency Service to tackle corporate fraud.

HMRC, Companies House and the Insolvency Service have failed to work collaboratively, missing opportunities to increase the tax take. Due to the fraudulent use of UK company registrations, contrived insolvencies and phoenixism to evade tax, HMRC, Companies House and the … Read more

Government Response

The government agrees and states that HMRC, Companies House, and the Insolvency Service have developed a joint programme for closer cooperation, including implementing consistent identity verification, fully tagged financial accounts, an enhanced data sharing framework, and changes to tackle rogue directors. A joint consultation on e-invoicing was also published in February 2025.

HM Treasury

View details

4 Conclusion Accepted

9th Report - Tax evasion in the re…

Companies House reforms contain gaps, enabling continued fraudulent company registration.

The planned reforms to the role of Companies House leave huge gaps and it is still too easy to register companies fraudulently. The Economic Crime and Corporate Transparency Act 2023 introduces significant changes to the role of Companies House, including … Read more

Government Response

The government agrees and highlights actions already taken since March 2024, including removing over 73,400 inappropriate addresses and rejecting 7,000 new incorporations. It commits to continuing the rollout of ECCTA reforms, including identity verification, and will report on progress to the Committee in November 2025.

HM Treasury

View details

5 Conclusion Accepted

9th Report - Tax evasion in the re…

Strengthen HMRC VAT registration controls and explore transaction-based reporting benefits.

HMRC’s VAT registrations processes are far too open to abuse, and it is not exploring options to tighten controls sufficiently. Checking whether businesses are genuinely UK established is important for VAT because online marketplaces are liable for VAT from overseas … Read more

Government Response

The government agrees and states that HMRC will explore additional controls and emerging technologies to reduce tax evasion, including real-time transaction reporting. A joint consultation on promoting e-invoicing and real-time transaction reporting was published in February 2025, with findings to inform future policy.

HM Treasury

View details

6 Conclusion Accepted

9th Report - Tax evasion in the re…

Develop a plan to increase prosecutions and disqualifications for tax evaders and rogue directors.

HMRC and the Insolvency Service are not tackling tax evaders or rogue directors sufficiently, particularly for phoenixism. The number of prosecutions resulting from HMRC’s criminal investigations reduced from 749 in 2018–19 to 344 in 2023–24. The previous Public Accounts Committee … Read more HMRC and the Insolvency Service are not tackling tax evaders or rogue directors sufficiently, particularly for phoenixism. The number of prosecutions resulting from HMRC’s criminal investigations reduced from 749 in 2018–19 to 344 in 2023–24. The previous Public Accounts Committee has raised concerns about fewer prosecutions meaning there is less of a deterrent effect for those inclined to evade tax. We are encouraged that 6 HMRC says it wants to increase the number of prosecutions resulting from its work, and that it has increased the number of positive charging decisions it has recommended to the Crown Prosecution Service. However, we are concerned that HMRC has not issued any penalties under powers to tackle suppliers of sales suppression software it gained in 2022. The Insolvency Service disqualified just 7 directors for phoenixism between 2018–19 and 2023–24. In total it has disqualified 6,274 directors in that time. Both figures are far too low given estimates of the number of fraudulent company registrations (5% to 20% of all company registrations) and the estimated cost to the Exchequer of contrived insolvency (£500 million a year). The Insolvency Service says it has disqualified directors who carried out phoenixism for more severe offences, and it has doubled the average length of disqualification to 10 years. It says it wants to go further both in volume and increasing publicity, particularly around phoenixism, but has not committed to any targets or forecasts. recommendation HMRC and the Insolvency Service should write to the Committee within six months with a plan to bear down on tax evaders and rogue directors who flout insolvency rules. This plan should include details of: a. how both organisations will increase prosecutions and disqualifications; b. how they will better publicise cases of successful prosecutions and disqualifications; and c. how they will report on their performance and ensure they are measuring the deterrent effect of their responsiv Show less

Government Response

The government agrees and confirms that HMRC, Companies House, and the Insolvency Service have agreed a joint implementation plan to tackle rogue directors and phoenixism, including developing a shared definition and specific measures to close vulnerabilities and increase investigations. The government will write to the Committee within six months with further details.

HM Treasury

View details

1 Conclusion Accepted

9th Report - Tax evasion in the re…

Committee reviewed agencies' approach to tackling tax evasion in the retail sector.

On the basis of a report by the Comptroller and Auditor General, we took evidence from HMRC, Companies House and the Insolvency Service on their approach to tackling tax evasion in the retail sector.1

Government Response

The government agrees and states that HMRC, Companies House, and the Insolvency Service will establish a framework for sharing threat assessments, data, and intelligence to improve understanding of corporate fraud. HMRC plans to lay out its plans by September 2025 and complete a tax gap impact assessment by September 2026.

HM Treasury

View details

9 Recommendation Accepted

9th Report - Tax evasion in the re…

Companies House and HMRC lack understanding of company register fraud's link to tax losses.

Companies House said that, prior to the introduction of the Economic Crime and Corporate Transparency Act (ECCTA), it estimated that 5% of UK registered companies were fraudulent. It explained that external commentators had estimated the figure could be as high … Read more

Government Response

HMRC, Companies House, and Insolvency Service will establish a framework for sharing threat assessments, data and intelligence to improve collective understanding of risks, corporate fraud and any tax gap implications, laying out plans by September 2025 and completing an assessment of potential impacts on the tax gap by September 2026.

HM Treasury

View details

14 Conclusion Accepted

9th Report - Tax evasion in the re…

ECCTA significantly enhanced data and intelligence sharing between Companies House and HMRC.

Prior to the introduction of ECCTA in March 2024, Companies House had limited scope to share data or insight with other public bodies such as HMRC. The new measures under ECCTA include the ability to proactively share information with other … Read more

Government Response

The government agrees with the committee's recommendation and states that HMRC, Companies House and the Insolvency Service have strong relations, and will implement consistent identity verification and authentication, share risk intelligence, and changes to penalise rogue directors, with an implementation target date of November 2025.

HM Treasury

View details

18 Recommendation Accepted

9th Report - Tax evasion in the re…

New ECCTA powers enable Companies House to effectively remove significant fraudulent company information.

In March 2024, the first measures of ECCTA came into force. ECCTA introduces significant changes to the role of Companies House which are intended to improve the reliability of the information on the company register and reduce the risk of … Read more

Government Response

The government agrees to explore options to improve the authenticity and integrity of company address information on the register and will report progress in November 2025, and notes that Companies House has already removed over 73,400 addresses and rejected 7,000 new incorporations with inappropriate addresses.

HM Treasury

View details

21 Recommendation Accepted

9th Report - Tax evasion in the re…

Online marketplaces primarily responsible for verifying overseas sellers' VAT establishment to prevent evasion.

The government introduced a legislative change in January 2021 to tackle tax non–compliance through online marketplaces. This removed responsibility for accounting for the VAT on sales from overseas retailers, and instead made the online marketplaces liable for the VAT.61 Overseas … Read more

Government Response

HMRC will strengthen controls through enhanced address validation within the VAT registration service by April 2026, and will write to the Committee to update progress in 6 months, with a final summary by April 2026.

HM Treasury

View details

22 Conclusion Accepted

9th Report - Tax evasion in the re…

HMRC does not routinely verify UK establishment for VAT registrations, posing compliance risks.

When businesses register for VAT, HMRC does not verify whether they are UK–established in most cases.65 HMRC explained all VAT registrations are risk assessed and that just over 50% of VAT registrations require further checks which can, but do not … Read more

Government Response

The government agrees with the recommendation to strengthen controls on VAT registrations and will conduct a feasibility study to explore options for enhanced address validation within the VAT registration service, with implementation targeted for April 2026.

HM Treasury

View details

23 Conclusion Accepted

9th Report - Tax evasion in the re…

HMRC's persistent system failures continue causing erroneous VAT debt demands to single address.

Over a six–month period in September 2022, a large number of VAT– registered overseas businesses changed their registered address to one residential property in Cardiff. The resident received more than 11,000 letters from HMRC and debt collection agencies regarding unpaid … Read more

Government Response

HM Treasury

View details

25 Conclusion Accepted

9th Report - Tax evasion in the re…

HMRC criminal prosecutions have significantly declined, weakening deterrent effect on tax fraud

In correspondence after our evidence session HMRC said that in 2023–24 it had launched 430 new criminal investigations and more than 10,200 civil investigations into suspected fraud, and had charged around 17,000 penalties for deliberate non–compliance.74 However, the number of … Read more

Government Response

The government agrees with the recommendation that HMRC and the Insolvency Service should create a plan to tackle tax evaders and rogue directors, and will write to the committee within six months to set out this plan with an implementation target date of Autumn 2025.

HM Treasury

View details

27 Recommendation Accepted

9th Report - Tax evasion in the re…

Insolvency Service disqualifies few directors for phoenixism despite significant tax debt losses

The Insolvency Service disqualified 6,274 directors over the period 2018–19 to 2023–24, but only seven of these were for phoenixism.83 HMRC estimates that phoenixism accounted for 15% of its tax debt losses in 2022–23, which equates to at least £500 … Read more

Government Response

HMRC and the Insolvency Service will write to the Committee within six months with a plan to bear down on tax evaders and rogue directors who flout insolvency rules including developing a shared definition of phoenixism.

HM Treasury

View details

Government Response AI assessment · 25 of 10 classified

Accepted 14

Accepted in Part 1

Acknowledged 9

Deferred 1

Total 10 recs + 17 conclusions

Correspondence 4 letters

27 Jan 2025 To committee Letter from the Chief Executive and First Permanent Secretary of HM Revenue and Customs relating to the oral evidence session held on 16 December 2024 on Tax evasion in the retail sector, 10 January 2025

Parliament page

17 Dec 2024 To committee Letter from the Registrar of Companies at Companies House relating to the briefing on the inquiry into Tax evasion in the retail sector, 13 December 2024

Parliament page

17 Dec 2024 From committee Letter to the First Permanent Secretary and Chief Executive of HM Revenue and Customs relating to the Accounting Officer Assessments for the Making Tax Digital Programme and the Locations Programme, 12 December 2024

Parliament page

16 Dec 2024 From committee Letter to the Chief Executive and Registrar of Companies at Companies House relating to the inquiry into Tax evasion in the retail sector, 12 December 2024

Parliament page