Twentieth Report - Tackling the tax gap

Select Committee

Public Accounts Committee HC 650 16 October 2020

Report Status Government responded

Conclusions & Recommendations 20 items (6 recs)

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Government Response (AI assessment · 19 of 20 classified)

Accepted 7

Accepted in Part 1

Acknowledged 2

Not Addressed 4

Rejected 5

Government response

Treasury minutes: Government response to the Committee of Public Accounts on the Twentieth report from Session 2019-21 · published 4 Feb 2021

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Recommendations & Conclusions

7 results

3 Recommendation Accepted

HMRC does not include sophisticated and undesirable tax planning by the wealthy and large businesses...

Recommendation

HMRC does not include sophisticated and undesirable tax planning by the wealthy and large businesses in its estimates of the tax gap. HMRC’s tax gap measures the uncollected revenue due to taxpayers’ non-compliance with existing rules. HMRC does not assess … Read more

Government Response Summary

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.

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5 Recommendation Accepted

It is not clear that Making Tax Digital will help reduce the tax gap or...

Recommendation

It is not clear that Making Tax Digital will help reduce the tax gap or taxpayer costs at a time when individual taxpayers and small businesses are under considerable pressure. HMRC’s primary objective for the ‘Making Tax Digital’ programme is … Read more It is not clear that Making Tax Digital will help reduce the tax gap or taxpayer costs at a time when individual taxpayers and small businesses are under considerable pressure. HMRC’s primary objective for the ‘Making Tax Digital’ programme is to help reduce the tax gap attributable to small businesses caused by error and failure to take reasonable care. The effectiveness of the programme is not yet known but HMRC is confident that it will achieve its aims: improving compliance rates, increasing productivity of businesses and allowing HMRC to realise savings. HMRC tells us that the Office for Budget Responsibility supports its view that the programme will help to close the tax gap, but we are not convinced that for all businesses there will be the benefits to them or tax collection that HMRC envisages. For example, the findings of a survey of businesses and agents, carried out 1 Since the Committee’s evidence session HMRC is reported to have announced that companies and other bodies had voluntarily returned more than £215 million to the government in furlough scheme payments they did not need or took in error. 8 Tackling the tax gap by the Chartered Institute of Taxation and the Association of Taxation Technicians during December 2019 and January 2020, raised doubts about the effectiveness of Making Tax Digital in reducing errors and increasing productivity as expected by the government. The survey findings also suggest costs to business of complying with the programme far exceed government estimates. The Making Tax Digital programme is a logical plan in a world where more and more activity is carried out digitally, but it will impose extra, and possibly unreasonable, costs on some individual taxpayers and small businesses, and may be disproportionate to the gain to HMRC. Some of these businesses may be less able to afford the changes since COVID-19. Recommendation: HMRC should, as part of piloting future rounds of MTD, assess whether the administrative burden it is Show less

Government Response Summary

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.

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6 Recommendation Accepted

HMRC’s plans to tackle the part of the tax gap attributable to small businesses are...

Recommendation

HMRC’s plans to tackle the part of the tax gap attributable to small businesses are made more difficult by the need to help those businesses survive the impact of the COVID-19 pandemic. HMRC estimates that 43% of the tax gap … Read more

Government Response Summary

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.

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10 Conclusion Accepted

HMRC’s estimate of the tax gap includes both non-compliance with the letter of the law,...

Conclusion

HMRC’s estimate of the tax gap includes both non-compliance with the letter of the law, such as tax evasion, and non-compliance with the spirit of the law, such as tax avoidance.22 We asked the Department the extent to which the … Read more

Government Response Summary

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.

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15 Conclusion Accepted

HMRC is implementing an ambitious initiative, Making Tax Digital, to help tackle error and failure...

Conclusion

HMRC is implementing an ambitious initiative, Making Tax Digital, to help tackle error and failure to take reasonable care, particularly in the small business population. Small businesses accounted for the largest share of the tax gap (£13.4 billion; 43%) in … Read more

Government Response Summary

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.

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16 Conclusion Accepted

We questioned the Department about the effectiveness of Making Tax Digital in closing the tax...

Conclusion

We questioned the Department about the effectiveness of Making Tax Digital in closing the tax gap, particularly in tackling tax evasion. HMRC explained that the programme is not designed to tackle tax evasion by small businesses. Other solutions are required … Read more

Government Response Summary

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.

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18 Conclusion Accepted

Small businesses accounted for the largest share of the tax gap in 2018–19.42 The tax...

Conclusion

Small businesses accounted for the largest share of the tax gap in 2018–19.42 The tax gap attributable to small businesses was 43% (£13.4 billion) of the total tax gap in 2018–19 and has remained fairly stable as a percentage of … Read more

Government Response Summary

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.

HM Treasury

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