1 Management of enforcement resources
1. In 2009-10, HM Revenue & Customs (the Department)
collected £435 billion in tax. Most taxpayers try to comply
with the law but a minority deliberately evade their obligations.
The Department estimated that the tax gap in 2008-09 - the difference
between the tax payable if all obligations were met and the tax
actually collected - was £42 billion (9% of theoretical
tax receipts). Some £15 billion was due to fraud, evasion
and criminal attack. The tax recovered by the Department's compliance
activities is not included in this estimate.
The Department uses various methods to obtain the tax due, from
helping those who want to comply through to identifying those
who evade, and imposing civil penalties or criminal prosecutions.
2. Civil investigations are designed to recover tax
due and impose financial penalties for non-compliance. Two Enforcement
and Compliance directorates do civil investigations -Specialist
Investigations for higher value, more complex investigations,
and Local Compliance for the lower value cases.
The two directorates have substantially increased the return on
their work since 2007-08. In 2009-10 they delivered £8.5 billion
in yield - the estimated additional tax arising from compliance
work - an increase of 49 % in real terms since 2007-08. They spent
£567 million on all of their work in 2009-10, having
reduced expenditure by 10 % over the three years. The yield to
cost ratio had increased from 9:1 to 15:1. As both directorates
also carry out other compliance work, the costs of, and yield
from, civil investigations are not separately identifiable.
3. The Department attributed the improvement to better
selection of cases across all of its enforcement work, not just
civil investigations. It has made greater use of analytical tools
to assess the information it holds about taxpayers and has identified
more possible cases of evasion as a result. It has also improved
its processes for case management to increase productivity.
4. Over the last three years, Local Compliance increased
its yield to cost ratio from 8:1 to 14:1, whereas Specialist Investigations'
ratio increased from 18:1 to 19:1. The two directorates were set
yield targets by the Department, but have generally outperformed
these by over 10% (Figure 1).
Targets have sometimes been set below the previous year's outturn.
The Department told us that the directorates were also on course
to achieve the much higher targets it had set them for 2010-11.
These higher targets represented the progress it had to make during
the final year of its three-year goal of reducing tax losses by
£7 billion by 2010-11.
5. Directorates translated their high level targets
into annual operational ones for their teams. They did so largely
on the basis of the teams' ongoing investigations and planned
work. However, the performance and the workload of different teams
varied widely, and the Department did not have sufficient understanding
of why this was.
We are therefore concerned whether the Directorates' targets have
been sufficiently challenging and whether the improvements in
yield: cost ratios could have been even greater. The Department
is now introducing a case management system that will give better
information about the comparative performance of teams. It is
also developing an economic model so it can test the likely results
of undertaking different mixes of activities in future. It expects
both systems to help optimise its use of resources.
1 Performance against targets
Note 1 Only yield that contributes to a reduction
in the tax gap counts towards the Department's Strategic Objective.
In 2009-10, Local Compliance generated £2.1 billion
of yield that related to the prevention of overpayments of VAT
Note 2 The 2010-11 targets were set as a range.
Source: C&AG's Report Figure 3
2 C&AG's Report para 1 Back
C&AG's Report para 1.3; Measuring tax gaps 2010, HM
Revenue & Customs 2010 Back
C&AG's Report para 2 Back
Q21, C&AG's Report para 2 Back
C&AG's Report paras 5, 1.11 Back
Qq 6-7 Back
C&AG's Report para 1.14, Figure 2 Back
C&AG's Report para 1.14 Back
C&AG's Report paras 1.15, 1.20 and 3.9 Back
Qq 22, 37-39, 68 Back