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17.12.15

HMRC loses ‘staggering’ £16bn in tax fraud every year – NAO

Despite losing about £16bn every year through tax fraud, HM Revenue & Customs (HMRC) has more complete information on its work done to tackle organised crime than tax evasion, the National Audit Office (NAO) has found.

In its report – the first in a series which will evaluate how effectively the department tackles different aspects of its longstanding problem with tax fraud – the auditor said fraud accounts for nearly half of HMRC’s estimate of the tax gap. The tax gap is the difference between the amount of tax it should collect annually and how much it actually does.

Despite this, the NAO acknowledged that reducing the amount of tax fraud is a high priority for the department, which already reported almost £27bn of extra revenue from its compliance work carried out in 2014-15 – including work to tackle tax fraud and error and avoidance.

But it only has partial data on how much of this revenue is derived from work specifically done to counter fraud. The auditor estimates 30-40% of this £27bn pool is generated by activities to tackle fraud, but this is based on patchy evidence.

Amyas Morse, NAO’s head, said: “HMRC loses £16bn a year due to tax fraud, but reducing these losses is not straightforward. HMRC has met its targets to raise more tax revenue in the short-term.

“It now needs to consider whether its overall strategy is designed to achieve the best long-term outcomes.”

But the Commons Public Accounts Committee’s chair, Meg Hillier MP, was less kind, saying the department’s yearly loss is staggering and arguing it “clearly needs to think harder” about how it tackles tax evasion.

“Time and time again we hear that government departments don’t have the data or information that they need to plan or evaluate their activities properly, despite them being responsible for setting up these projects or programmes in the first place,” she continued.

“HMRC is no different in this respect. HMRC needs to use the powers and sanctions it has to make a public example of those who break the rules.”

The Committee carried out a similar investigation into HMRC in October, concluding it has no meaningful framework to tackle tax credit fraud and error during the transition to universal credit.

It had also blasted the Department for Work and Pensions (DWP) for failing to meet its 2014-15 target for reducing fraud and error, instead relying on welfare reforms to make future improvement.

The Committee’s report followed on from a previous NAO investigation in July, which found that the Department for Work and Pensions was not on track to deliver its Spending Review target for reducing fraud and error.

Both the Committee and the NAO have pledged to examine and work with HMRC to help it continue to take a broader look at its strategy – such as by placing more emphasis on preventative measures rather than relying on post-fraud investigation.

“We will be evaluating HMRC’s performance in tackling different types of tax fraud in more depth,” Morse said.

“As we do so, we will be looking for further improvements in the way HMRC uses data and analysis to understand the effect of its actions in both the long and short-term.”

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