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Author Mark Fairlie
On November 1st, 2017, UK Prime Minister Theresa May stated during Prime Minister’s Questions that HMRC had “secured almost £160 billion in additional compliance revenues since 2010.” The statement was made in response to Labour’s suggestion that the government was not doing enough to combat money laundering. But where does the figure come from, and is it correct?
According to HM Revenue and Customs, an estimated extra £160 billion has been raised as a result of actions to tackle tax evasion, tax avoidance, and noncompliance. This number includes £2.8 billion being recovered from offshore tax evaders.
However, both the Prime Minister and the HMRC used the word “secured” when describing the additional funds collected, but the jury is still out on this number.
Due to the fact that a large part of the data is estimated, and a further proportion is made up of predictions of the money HMRC thinks it will make in the future as a result of their actions each year, many believe the word “secured” to be misleading.
How the HMRC figure is calculated
There are five types of compliance yields set out in HMRC’s latest Annual Report and Accounts. These are calculated and put together to form the alleged £160 billion collected since 2010.
The first additional revenue comes from cash accumulated in tax when the HMRC is able to identify and challenge non-compliance. This is an estimate of all the money collected in efforts to counteract tax avoidance and evasion. For 2016 to 2017, cash expected is thought to have raised an extra £10.3 billion.
Then there is money the HMRC has saved in preventing revenue losses. This is calculated using two different statistics. The first is losses prevented by refusing or reducing repayment claims that are either incorrect or fraudulent, which is thought to have saved £4.8 billion in the last year. The second figure is an estimation of the value of all criminal activity disrupted by HMRC seizing elicit goods, amounting to £3.1 billion since 2016.
Calculating the total £7.9 billion recorded for prevented revenue losses is said to be an “uncertain business” by BBC News, as it would be difficult to calculate the exact amount that would have been made by a criminal activity if it had not been disrupted.
Product and process yield is thought to have saved the taxman £3 billion over the last year. This is the estimated impact of legislative changes to close tax loopholes and adaptations to their processes to make it harder for people to avoid or evade tax.
A further £1.3 billion of revenue is said to have been raised from issuing Accelerated Payments notices. This is an estimated combination of money brought in from disputed amounts of tax those found to be using tax avoidance schemes are now required to pay upfront within 90 days, and the behavioural change in taxpayers that the policy has generated.
Finally, there is future revenue benefit, which is the estimated effect of HMRC’s compliance interventions on future customer behaviour. This is possibly the most controversial of the compliance yields listed in the report used to calculate the end of year figure.
The number is based on the assumption that those who have been caught out by the taxman will change their behaviour in the future, therefore increasing the HMRC’s future income. Future revenue benefit was said to have raised £6.3 billion since 2016.
Whenever a compliance investigation ends, HMRC staff estimate whether the taxpayer’s behaviour will change as a result of the intervention, and for how long for based on their characteristics and circumstances.
How reliable are these numbers?
The ‘future revenue benefit’ figure is calculated by the Office of Budget Responsibilities, who admit themselves that the predicting the amount of money it would save were of ‘high uncertainty’ as it relies somewhat on wishful thinking that the tax evader will change their ways.
According to the government report, future revenue benefit is “inherently less certain, harder to estimate and more susceptible to errors” due to estimates being based on HMRC staff’s personal judgement of the taxpayer.
So whilst both the Prime Minister and HMRC claim they have “secured” almost £160 billion in additional revenue since 2010, it is clear that this figure is not entirely reliable. The data used to calculate it is made up mostly of estimates and money their efforts will save in the future rather than what they have physically accumulated over the past seven years.