Conclusions and recommendations |
1. Over the last three years, the Department
has increased yield while reducing costs through better targeting
of its work. We welcome
this positive progress. The Department faces a significant
challenge over the next four years in reducing its costs while
raising additional revenue of around £18 billion from increased
efforts to tackle fraud, evasion and debt. A highly motivated
workforce is crucial to its success. Strong leadership will, therefore,
be needed to boost morale within the Department from its currently
low ebb during this period of further change. The recommendations
that follow are designed to help the Department strengthen its
capability to achieve the higher levels of performance required.
2. The Department has not had a sufficient
understanding of the costs and returns of different enforcement
activities. It is preparing detailed plans
for achieving the additional tax revenue of £18 billion
in its Business Implementation Plan, which will be published in
April 2011. We expect the Department to be clear about how it
will use the £900 million planned spending on the tax
gap and its assessment of risks. The Department should identify
the costs and returns of different activities and the point at
which it would reach diminishing returns. It should base its decisions
on enforcement work on this evidence.
3. Although its performance has been strong,
the Department has not set sufficiently demanding targets for
its investigation directorates. To date,
the two civil investigation directorates have exceeded their targets
each year. Targets were sometimes set below the previous year's
outturn. The challenge the Department faces over the next four
years will require the directorates to stretch their performance
further. The Department should set more stretching operational
targets for investigation teams, based on a better understanding
of their performance and capability. The Department should also
apply learning from the improvements achieved in the Local Compliance
directorate, which has almost doubled its yield to cost ratio,
to the Specialist Investigations directorate, where the return
has remained broadly constant.
4. Only 20% of cases referred to dedicated
investigation teams were adopted, creating disillusionment among
caseworkers. In part, this low level of
take-up by the investigation teams reflects capacity, in part
it reflects the quality of the referrals. It is, however, demotivating
to front line staff to have so many cases rejected. The Department
plans to re-launch the system with revised criteria to better
identify serious fraud and evasion cases. It should set an expected
adoption rate and monitor the system closely. The Department should
also review what happens to cases which are rejected.
5. Only one quarter of civil investigation
of fraud cases were completed within the Department's 18 month
target, and 15% took over three years.
The length of investigations will be influenced by the nature
and complexity of the case but the Department should analyse the
reasons for variation and set an objective to reduce the time
taken to conclude civil investigations. It should consider setting
target times for completing individual investigations and identify
ways to streamline its approach.
6. Over one quarter of civil investigations
of fraud resulted in a penalty of less than 10% of the tax due,
and one in seven did not impose any penalty.
The Department expects the new penalty regime to result in higher
penalties as the minimum penalty for deliberate evasion and concealment
is 50%. The Department should track the level of penalties imposed
to ensure that it is applying the new regime rigorously.
7. The Department does not have adequate systems
for ensuring that the outstanding tax, interest and penalties
due from civil investigations are paid.
Not ensuring debts are collected is unacceptable. The Department
is working to achieve a collection rate of at least 95% in future,
from a base of 90%. The Department should vigorously pursue the
collection of debt and improve its systems so that it can track
whether debts are paid. It should set a target date for achieving
a 95% collection rate.
8. The tax gap provides an important measure
of the Department's long-term performance in tackling non-compliance,
but a range of measures are needed to assess the impact of enforcement
activities in the short term. The Department
intends to introduce a new set of performance measures in 2011.
Among them will be a measure of the amount of extra tax actually
collected as a result of compliance work, not simply the amount
identified as owing. In assessing its performance, it should
also improve its understanding of the impact of its work on taxpayer
behaviours and levels of non-compliance, while keeping in view
the broader objective to reduce the tax gap.