Tackling tax fraud: how HMRC responds to tax evasion, the hidden economy and criminal attacks

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HM Revenue & Customs (HMRC) is responsible for administering the tax system, including the management and reduction of risks to tax revenue. HMRC measures the gap between what tax revenue it should in theory collect and what it does collect (the tax gap) and assesses what behaviour led to that gap. Where these behaviours lead to the law being broken we refer to this as ‘tax fraud’. Tax fraud is a long-standing and intractable problem, not only for HMRC but for tax administrations across the world. Reducing the amount of tax that is lost because of people and businesses acting illegally is a high priority. HMRC addresses tax fraud as part of its overall response to those who fail to comply with their tax liabilities. HMRC’s wider compliance and enforcement work encompasses all the behaviours that contribute to the tax gap. The difference between behaviours is not always clear cut. Tax fraud differs from tax avoidance, which involves acting within the letter but not the spirit of the law; when investigated, tax avoiders may be found to have misused tax rules but their actions are not normally illegal.
This report provides an overview of the issues facing HMRC in dealing with tax fraud and how it has responded to them. Over the course of this Parliament we will evaluate how effective HMRC is in tackling different facets of tax fraud. In this report we describe: a) the nature and scale of tax fraud in the UK; b) how HMRC tackles these problems; and c) HMRC’s approach to prosecutions.
HMRC has processes and approaches in place to respond to non-compliance, many of which are well established and long-standing. However, it is healthy for any organisation to challenge received ways of doing things. There are no perfect answers to these questions but HMRC should be able to explain and justify its choices. Like any tax authority, HMRC faces competing pressures and constraints, and putting resources into work in one area means not doing something else. It must fulfil its objectives within tight funding requirements. Different governments have different priorities and HMRC must respond to these. HMRC must also respond to unpredictable economic pressures and the expectations of taxpayers and the wider public. This leaves it with some difficult judgements to make about the balance of its compliance activities. We believe HMRC has started to take a more strategic view of its compliance business, but needs to go further. It has begun to shift the balance of its work, placing increasing emphasis on measures to prevent non-compliance rather than relying so much on investigating it afterwards. It is working to improve the way it collects and analyses data. Alongside these positive steps, we encourage HMRC to do more to strengthen the evidence that underpins its decisions, and to develop a clearer view of what would be the optimal balance of compliance activities based on sound data, analysis and judgement.
Keywords: 
Tax fraud, Fighting Tax Evasion, Budget, Company Law, Internal Market
Country of publication: 
United Kingdom
File: 
Publication date: 
Thursday, December 17, 2015
Number of pages: 
50