Twentieth Report - Tackling the tax gap

The government's response discusses funding decisions for the Towns Fund and Levelling Up Fund, providing no comment on HMRC's ability to estimate tax gaps in the four UK nations.

The government rejects the recommendation to include tax gap analysis by industrial sector due to data and modelling limitations, feasibility issues, and the high level of assumption required, and implicitly rejects analysis for the four nations for similar reasons.

The government states it agrees with the recommendation and claims it is implemented, explaining that it already provides an estimate of the 'avoidance tax gap' for revenue loss when taxpayers do not follow the spirit of the law, as detailed in its publication.

The government's response is irrelevant to the recommendation, discussing an annual update and monitoring of 'the Fund' rather than explaining how HMRC will change its compliance approach in light of COVID-19.

The government agrees with the recommendation with a target implementation date of Summer 2021, and HMRC is engaging with stakeholders to understand and minimise MTD costs, with revised estimates to be published.

The government accepts the recommendation, confirming that HMRC wrote to the Committee on 10 November 2020, explaining its approach to balancing tax gap efforts with supporting small businesses impacted by COVID-19, and published an issue briefing detailing this.

The government's response provides an introductory overview of HMRC's tax system responsibilities and the tax gap, rather than addressing the committee's factual statement about taking evidence.

The government rejects the implicit suggestion of providing confidence intervals for compliance yield, explaining that due to complexity and varied methodologies, a robust method would be complex, assumption-based, and of limited insight.

The government rejects the implicit recommendation for tax gap analysis in the four nations due to data and modelling limitations, stating that current methods do not comprehensively allow for such subgroup analysis, though it disaggregates the oils tax gap for Northern Ireland where feasible.

The government disagrees with the implied recommendation to assess and publish the tax gap across different industries, explaining that current models, data, and resources do not allow for comprehensive or precise industry-specific analysis.

The government confirms that it already provides an estimate of the 'avoidance tax gap,' defined as revenue loss from taxpayers not following the spirit of the law, detailing how this is captured in its publications.

The government rejects the idea of measuring tax loss from 'undesirable sophisticated tax planning' due to definitional and feasibility issues, though it states it already estimates the avoidance tax gap (bending rules, not the spirit of the law).

The government states it regularly publishes updates on its changed compliance approach due to COVID-19 and plans to publish a full estimate of error and fraud, which relates to the context of the pandemic's impact on tax collection discussed in the conclusion.

The government states it regularly publishes updates on its changed compliance approach due to COVID-19 and plans to publish a full estimate of error and fraud in COVID-19 support schemes by late 2021, a timeline under review.

The government agrees with the committee's observation, reiterating its existing plans to expand Making Tax Digital to all VAT payers from April 2022 and to businesses/landlords with income over £10,000 from April 2023, while noting ongoing stakeholder engagement to minimise costs.

The government agrees and outlines its ongoing plans for the expansion of Making Tax Digital (MTD) to more taxpayers and tax types by April 2023, noting its role in reducing errors and improving productivity, with continued engagement on cost estimates.

The government's response, which states agreement with a recommendation and details its actions on MTD costs, does not directly address the committee's conclusion that survey findings indicated Making Tax Digital compliance costs had far exceeded government estimates.

The government agrees and states it has implemented a strategy to balance tackling the tax gap in small businesses with providing support during COVID-19, having published an issue briefing outlining its approach.

The government states it agrees with the implied recommendation and has implemented its approach to supporting small businesses during COVID-19, having published an HMRC issue briefing on how it will continue to support customers and the economy.