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The UK public purse is missing out on approximately £5.5 billion in potential revenue due to tax evasion, as highlighted in a recent report by the National Audit Office (NAO). The bulk of this loss for the 2022-23 tax year is linked to small businesses, which account for 81% of the evasion, a significant increase from 66% in the year ending April 2020. Despite this rise, data from HM Revenue and Customs (HMRC) indicates that the overall level of tax evasion has stabilized in recent years.
The NAO criticized HMRC for its lack of focus on tackling tax evasion, particularly among small businesses, which are said to "easily exploit weaknesses in government systems." According to the report, HMRC does not have a dedicated strategy for addressing tax evasion, choosing instead to focus on preventing an increase in overall non-compliance rather than actively reducing evasion. This lack of targeted action has led to concerns over the effectiveness of current measures in tackling the issue.
In addition to the challenges posed by tax evasion, HMRC is also grappling with internal problems. The agency has seen a rise in dismissals for gross misconduct, reaching a five-year high. Data obtained by the Telegraph reveals that 179 staff members were dismissed in 2023, marking a 43% increase since 2020. These dismissals were linked to serious offenses, including fraud and gross negligence, signaling a tougher stance within HMRC towards internal misconduct.
Despite this, concerns remain about the impact of these disciplinary issues on the overall effectiveness of the tax authority. The rise in internal problems highlights the need for improved oversight and accountability within HMRC to ensure that its operations remain efficient and credible. As the agency prepares to receive additional funding for staff recruitment, there will be a strong focus on improving staff training and maintaining service standards.
Addressing both the external challenge of tax evasion and the internal issue of staff misconduct will be crucial for HMRC moving forward. By tightening its approach and implementing more robust strategies, the tax office can better tackle evasion and enhance its operational effectiveness, ensuring that it recovers more of the revenue that is currently being lost.
