There are signs that the tax gap may grow, and that HMRC does not have the operational resilience needed to deal with this. HMRC is funded to stop the tax gap from growing. The tax gap is an important measure of how much revenue may be missed—due to evasion, avoidance or non-payment—that could otherwise fund vital public services. Due to the way it is estimated, the tax gap does not yet reflect the full impact of the pandemic and will not do so for some time. HMRC’s latest estimate is that the tax gap was stable in 2020–21, but HMRC says that this has a much larger range of uncertainty than normal and may need to be revised as it gets more data. There is a significant risk that the tax gap will grow, in light of compliance yield dropping and levels of debt and non-payment rising. HMRC’s own planning estimates indicate that it is unlikely to generate enough compliance yield to stop the tax gap from growing in the next few years. However, it does not have a contingency plan if this happens. Since it takes four years to get compliance staff fully trained and up to speed, there could be a long lag if HMRC waits to determine whether it needs more resources. HMRC has up to 20 years to pursue cases of suspected non- compliance, but this only applies to fraud cases. For errors the period is less, and in some cases HMRC cannot go back more than four years. Recommendation 6: a) HMRC needs to build in more resilience to the tax system, with the tax gap at risk of growing and high returns available from compliance work there is a strong value for money case for increasing resources. b) At a minimum, HMRC should specify a contingency plan for bringing in additional compliance capacity to ensure increased levels of non- compliance can be tackled quickly, and before the window closes for investigating cases it did not pursue during the pandemic. 8 Managing tax compliance following the pandemic 1 Impact of the pandemic on tax compliance