HMRC spends just 6% of annual budget on fighting tax avoidance

HMRC has been criticised for spending just 6.5% of its £6.8bn annual budget on preventing specific areas of tax evasion, avoidance and non-compliance in 2022/23.

In HMRC’s annual report for 2022/23 the tax office revealed that it invested £451m in addressing “specific areas of tax evasion, avoidance and non-compliance”. This equates to only 6.5% of the tax authority’s £6.8bn expenditure in the 2022/23 financial year.

As part of HMRC’s strategy to stop tax avoidance schemes, the tax office named 27 promoters and 5 directors, alongside details of the 31 schemes they were promoting. 13 ‘Stop Notices’ were also issued, which require promoters to stop selling or promoting a scheme.

However, umbrella company compliance specialist, PayePass, called this a “drop in the ocean” and urged HMRC to invest more in tackling the proliferation of tax avoidance schemes posing as umbrella companies.

In recent months, the government published draft legislation which would mean the most persistent promoters of tax avoidance could be issued with unlimited fines and imprisonment for up to two years if they fail to comply with a ‘Stop Notice’ issued by HMRC.

Julia Kermode, CEO of PayePass, commented: “Above all else, HMRC’s accounts show that more needs to be invested in putting a stop to tax avoidance schemes once and for all. Tax avoidance schemes result in billions slipping through HMRC’s fingers, so 6% of nearly £7bn worth of spend raises questions over how seriously the government is taking this issue.

“Had proper enforcement been in place, the government would not have brought in its draconian Loan Charge policy, which has had disastrous consequences on tens of thousands of innocent people who are being pursued for unpaid tax.

“The return on investment from preventing tax avoidance schemes is huge, and the resulting income would more than cover the costs of doing so – it’s a no-brainer.

“What’s more, along with damaging the economy, these schemes cause devastation to thousands of workers who they lure in under the pretence that they are fully compliant umbrella companies. And I’m all for naming and shaming tax avoidance schemes, but 31 is a drop in the ocean.”

HMRC were also recently blasted for taking over three years to deal with basic enquiry with a leading accountant has labelled HMRC as ‘dead in the water’ – after receiving a response to an enquiry submitted in 2020 more than three years later.