Tackling the tax gap

To improve its approach to tackling the tax gap, HMRC should: a) seek opportunities to base more of the overall tax gap estimate on established methodologies to reduce the level of uncertainty;

b) in developing its new performance measures: i) develop measures for each significant factor affecting the tax gap, for example, costs to taxpayers and intermediaries of complying, taxpayer experience, perceptions of fairness and the deterrence effect of its activities;

ii) review the impact of compliance yield on the tax gap, and the significance of timing differences between the compliance yield and the tax gap measures;

iii) in partnership with HM Treasury develop shared and trusted data on the impact of different resourcing options, including the marginal rates of return from compliance activity and wider trade-offs, to help judge how to maximise tax revenues cost-effectively; and

c) while recognising that it is appropriate for HMRC to primarily organise its approach to compliance by risk and customer group, consider extending, where relevant to other tax gap behaviours, good practice shown in its tax avoidance strategy and approach. For example, by setting out, in a single place for other behaviours, clear strategic objectives for tackling the underlying behaviour and a summary of the different actions HMRC is taking to achieve those objectives.