Managing civil tax investigations

17 December 2010

HMRC's civil investigations directorates, which examine serious cases of suspected tax evasion, have generated increasing returns from their work, while reducing resources.

A report today by the National Audit Office recognises this improvement in performance but underlines the scope for them to achieve more.

Since 2007-08 the directorates have increased the additional tax generated ('yield') from their work by 49 per cent in real terms to £8.5 billion, while reducing their expenditure by 10 per cent in real terms, to £567 million. The return has increased from 9:1 to 15:1.

The directorates undertake a range of enforcement work and it is not possible to state the return specifically on civil investigations. They have also delivered a range of other activities to prevent future tax losses and improve taxpayer compliance.

Yield provides a firm measure of the value of investigation work. But used alone it does not capture the full impact of investigations, such as the effect on taxpayer behaviour; nor does it encourage preventative work to improve compliance. The Department is planning a broader range of metrics to assess the impact of its enforcement activities.

Today’s report points out that, while the Department is making progress in understanding its performance and managing its enforcement resources, it does not have all the management information necessary on the cost-effectiveness of its different types of enforcement activity and their wider impact.

Among the NAO's recommendations to the Department are that the system for referring cases for investigation be improved; that the time taken to complete investigations be reduced; that a clearer picture be developed of the penalties imposed on those found to have evaded or defrauded tax; and that it be made easier to trace whether tax debts from completed investigations have been paid in full.

Amyas Morse, head of the National Audit Office, said today:

"HM Revenue and Customs is taking significant steps towards achieving value for money in its civil investigations of suspected tax fraud or evasion. It has further to go, especially in its understanding of the relative costs and returns of its different enforcement activities, including civil investigations, and their wider impact on taxpayer compliance and behaviour. Progress here would inform decisions on how to deploy resources to best effect."

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