UK Parliament's Public Accounts Committee published a report arguing that the true cost of tax evasion is likely being significantly underestimated and that HM Revenue and Customs (HMRC) lacks a clear objective or strategy for tackling evasion and deliberate non-compliance. The Committee calls for a clearer cross-government approach, including stronger powers for public bodies to address fraud and more effective controls to prevent misuse of company and VAT registration systems. HMRC estimates tax evasion cost GBP 5.5 billion in 2022-23, with 81% attributed to small businesses, but the Committee points to evidence suggesting the scale could be higher. It highlights that 2021 legislation making online marketplaces liable for VAT from overseas sellers generated around GBP 1.5 billion in additional taxes per year, five times greater than HMRC predicted, and urges HMRC to assess why its estimates appear to have missed this gap; the inquiry also heard that between 5% and 20% of UK registered companies were fraudulent in 2023. The report criticises limited collaboration between HMRC, Companies House and the Insolvency Service, questions whether Companies House’s powers under the Economic Crime and Corporate Transparency Act 2023 are being used effectively, and flags ongoing weaknesses such as the inability to verify registered company addresses; it also cites a case in Cardiff as indicative of VAT registration processes being open to abuse. The Committee notes falling outcomes from HMRC criminal investigations, with prosecutions down from 749 in 2018-19 to 344 in 2023-24, alongside just seven director disqualifications for phoenixism by the Insolvency Service over the same period. On timing, the Committee argues that the planned five-to-ten-year timetable for tightening company registration requirements is too slow, while noting that mandatory identity verification is due to begin by autumn 2025.
UK Parliament 2025-02-12
UK Parliament's Public Accounts Committee calls on HMRC to set a tax evasion strategy and tighten anti-fraud controls
The UK Parliament's Public Accounts Committee criticizes HMRC for underestimating tax evasion costs and lacking a clear strategy to combat it. It calls for a stronger cross-government approach, highlighting ineffective collaboration between HMRC, Companies House, and the Insolvency Service, and inadequate use of powers under the Economic Crime and Corporate Transparency Act 2023. The report notes declining prosecution outcomes and urges faster implementation of company registration reforms.