Value for Money
The administrative cost of the tax system
Published 10 February 2025
10 recommendations
HM Revenue and Customs
Money and taxTax and revenue
nao.org.uk
An increasingly complex tax system is burdening government and business with billions in admin costs.
Recommendations (10)
Source: NAO Recommendations Tracker · PAC follow-up below
HM Revenue and Customs
Rec 1
Partially Accepted
Work Not Yet Started
HMRC should take a whole-system view of the cost-effectiveness of the tax system when
making administrative changes or advising on policy changes. HMRC should
be clear when it is placing increased requirements on taxpayers or
intermediaries about the estimated costs and benefits to each party, and
explain the allocative efficiencies from any redistribution of responsibilities.
If the burden on customers is to be increased, the assumption should be that
HMRC costs will fall, unless there is a compelling reason why this should not
be the case, such as revenue gains or service improvements. Similarly, it may
be appropriate for HMRC to take on greater costs, where this reduces the
overall cost of the system.
HM Revenue and Customs
Rec 10
Partially Accepted
Work in Progress
HMRC should publish its estimates of the costs of the tax system to businesses and
individuals, and explore how it could identify the burdens on compliant
individual taxpayers
HM Revenue and Customs
Rec 2
Partially Accepted
Work in Progress
HMRC should move quickly to establish clear responsible owners for the effectiveness
and efficiency of each tax regime. These Regime Owners should have a
complete picture of costs relevant to their tax regime, not just direct costs,
to aid decision-making on issues relevant to their tax regime. As part of this
they should analyse costs through different lenses such as cost per taxpayer,
and monitor and respond to areas of high unnecessary cost such as process
failures and design weaknesses.
HM Revenue and Customs
Rec 3
Partially Accepted
Work in Progress
HMRC should establish clear and measurable objectives for making changes to simplify
the administration of the tax system. As part of its simplification strategy,
HMRC should make a measurable commitment to reduce administrative cost
burdens on customers, and published proposals should include an estimate
of the costs being taken out of the system.
HM Revenue and Customs
Rec 4
Partially Accepted
Work in Progress
HMRC should develop efficiency and productivity measures to demonstrate that it is
controlling costs independently of movements in revenue or increased budgets.
Measures should include the cost and time to complete each activity and
the ratio of activity to outcome. For example the cost to serve each taxpayer,
the cost and time to deal with types of contact, query or case, and the
additional revenue raised per compliance activity
HM Revenue and Customs
Rec 5
Partially Accepted
Work Not Yet Started
HMRC should Increase levels of compliance yield per case worker with the aim to
return to pre-pandemic levels of performance as soon as possible.
Experienced caseworkers should be expected to generate yield levels closer
to historic levels more quickly. HMRC should ensure that its benchmark for
good levels of compliance yield per caseworker take account of historic
levels, inflation, higher returns from relevant upstream activity, increased
capability from digital investment, and skills and experience of staff.
Overall HMRC should be aiming to increase productivity each year and
ensure benchmarks are sufficiently stretching
HM Revenue and Customs
Rec 6
Accepted
Work Not Yet Started
HMRC should develop a clearer understanding of the costs and benefits of ?upstream?
compliance activity, and identify where upstream measures will reduce
the need for downstream compliance work.
HM Revenue and Customs
Rec 7
Accepted
Work in Progress
HMRC should be more ambitious in how it can better work with intermediaries to reduce
system costs. 2025 is the midpoint of the Tax Administration Strategy and
this is an appropriate moment to include more on the role of intermediaries
in terms of commitments to provide access to digital services on an equal
footing with taxpayers, and set out how unregulated agents will be managed.
This might involve both responding to agents? feedback, but also considering
the level of compliance risk associated with different taxpayer representatives
and the appropriate amount of compliance and quality assurance work.
HM Revenue and Customs
Rec 8
Partially Accepted
Work in Progress
HMRC should analyse whether cost and benefit estimates published in Tax Information
and Impact Notes with significant expected impacts were accurate, to help
refine future estimates, and publish the results where there are large
variations between estimate and outturn.
HM Revenue and Customs
Rec 9
Accepted
Work Not Yet Started
HMRC should consider the feasibility of introducing more external scrutiny and
independent challenge of the estimates of business impacts included in Tax
Information and Impact Notes. For example, sharing more detail of costing
assumptions, research and methodologies as part of external consultation
exercises that follow budget announcements.
Parliamentary Committee Follow-Up
The Public Accounts Committee examined this NAO report and published its own recommendations. The government responds to PAC recommendations via Treasury Minutes.
23rd Report - The cost of the tax system
Public Accounts Committee
· 30 April 2025
· 13 recommendations