Among the measures announced in the Chancellor’s Autumn Statement was a commitment to spend an additional £79m over the next five years to enable HMRC to ‘allocate additional staff to tackle more cases of serious tax fraud and address tax compliance risks among wealthy taxpayers’. The Autumn Statement 2022 claims (at para 5.42), that that expenditure will yield £725m of additional tax revenue over that five year period.
Pinsent Masons recently published research that showed that for every £1 spent on investigations into wealthy individuals, HMRC raises £28 in additional tax and for every £1 spent on tax investigations into large businesses it raises £56.
Abigail McGregor, legal director at the firm, said:
‘As long as investigations keep bringing in far more than they cost, we can expect to see HMRC continuing to get more and more resources for its compliance work.
‘HMRC recognises that its ability to recoup the targeted tax revenue depends on its capacity to recruit effectively and on a timely basis; however, taxpayers should keep in mind that this continuing increased investment to close the tax gap means more investigations, which can lead to more penalties and more prison sentences in the most extreme cases.’
Mrs McGregor may well be right in suggesting that this is the narrow calculation the Government makes in deciding whether to increase its spending on HMRC’s activities. It is certainly not the calculation which it ought to make.
Many tax investigations prove to be unnecessary. Taxpayers often concede and pay tax imposed by HMRC which is not due under the law because the burden of HMRC’s investigations outweighs the tax at stake. There is an economic cost to the country of employing professional level staff on the unproductive activity of appropriating taxpayers’ moneys who could be employed in the productive economy. The poor working practices and time wasted in unproductive activities which much Government work involves and the idle habits which Government staff acquire in performing it often undermine their ability to undertake useful work when they do leave Government employment.
Governments must fund their expenditure and must, therefore, employ tax collectors. But a responsible government recognises that there are wider economic costs to the country of doing so which, if it is concerned for the country’s long-term good, need to be taken into account in deciding in what manner, and to what degree, HMRC should be allowed to operate.