Lackadaisical is an old-fashioned word, but it is an awfully good one for our complicated times. To paraphrase its definition in Chambers Dictionary, it means ‘showing little energy, interest and enthusiasm, especially in a nonchalant way’. Or as one observer in the tax world put it to me in the wake of the recent National Audit Office (NAO) report on tax evasion: ‘The government has spent three years doing sweet FA.’
And they weren’t just referring to the tax world. The report largely backs up this point of view. One of its key findings is that: ‘HMRC does not have a specific strategy for addressing tax evasion, focusing instead on tackling strategic risks of non-compliance to prevent the overall tax gap from increasing’. Another is that: ‘HMRC does not know how successful it is in tackling tax evasion, in aggregate or for particular tax-payer groups.’
This is partly down to setting daft targets. Set a specific target and all that happens is the results tell you little. The Treasury measures success as return on its investment. So HMRC goes for a few big company investigations to up its yield. Brownie points all round. But as the NAO report points out, that means that small companies spot the gap in investigations and dive through.
To be fair, HMRC hasn’t been given the resources that it needs from the government
‘Evasion from small businesses – which includes companies, partnerships and sole traders – increased from £3.1bn (66% of the evasion tax gap) in 2019–20 to £4.4 bn (81%) in 2022–23,’ the NAO points out. Or as it explains: ‘Tax evasion has been growing among small businesses, and HMRC has so far lacked an effective strategic response.
‘There are good examples of localised campaigns targeting some retailers, but HMRC missed earlier opportunities to tackle others, potentially allowing their market share to grow.’ And so it goes on.
Lost revenue
Sales suppression, where software is used to remove or reduce the value of transactions, is rife and increasingly sophisticated. In 2019, HMRC estimated it amounted to £450m in lost revenue a year. A strategy was introduced then, but has not been updated since, and HMRC doesn’t know what losses it may have missed.
As the report says: ‘More sophisticated electronic sales suppression methods are increasingly marketed to businesses.’ However: ‘HMRC has not updated its estimate of the scale of tax losses since 2019, but plans to do so in December 2024.’ That’s five years later. Lackadaisical, as I said, is the word.
To be fair, HMRC hasn’t been given the resources that it needs from the government. And the report shows that where something is actually done, the benefits really rather surprise HMRC. Back in 2021, the government decided to deter overseas sellers from evading VAT. Legislation was introduced to make online marketplaces liable for VAT on sales from overseas retailers. The result has been an extra £1.5bn a year more VAT. The report suggests that HMRC was astonished by this. ‘This is five times the level HMRC predicted,’ it says.
Future deterrence will take time. This infuriates HMRC’s Treasury masters
The overall impression the report gives is of an organisation that has nothing like enough resource to do its work remotely effectively. As a result, it is reduced to a scattergun strategy. There have been great successes in small corners; but in other sectors such as small business, knowing that they can get away with anything, and then doing so, is the vast downside.
And when it comes to future deterrence, or long-term plans to introduce systems of digital deterrence, particularly for small businesses, these will take time. This infuriates HMRC’s Treasury masters, who want results yesterday. But they don’t happen. And next year’s report will doubtless complain about the same issues a year on.
