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HMRC’s cash take from tax compliance investigations falls by 28% to £1.1bn

HMRC Her Majesty Revenue and Customs sign in London, UK
  • Increase in tax evasion investigations likely as HMRC looks to find funds from elsewhere
  • Crypto investors and buy-to-let landlords likely to be looked into

HMRC’s expected collection of “cash” from tax compliance investigations has fallen 28% to £1.1bn in the last quarter, compared to £1.5bn in the same quarter in 2020/21, says tax investigation insurance experts, PfP.

HMRC’s “cash” collection from tax compliance work is the actual money it gets from tax evaders and avoiders paying back underpaid tax, penalties and interest payments on that underpaid tax.

The fall in cash collected from tax evaders and avoiders is likely to prompt a ramping-up of investigations into tax evasion and avoidance.

The decrease in cash take is despite an increase in compliance checks, with 76,000 in the last quarter compared to 51,000 in the same quarter in 2020/21.

PfP explains that lockdown meant that HMRC investigations were happening at a far slower pace than normal as staff were shifted to administering the furlough scheme. However, with the furlough scheme now at an end staff are being shifted back to tax investigations.

The Government is likely to look to recoup as much underpaid tax as possible to make up for the losses on Government-backed loans such as CBILS and BBLS, which are expected to amount to close to £20bn.

Potential areas for an increase in investigations by HMRC could include buy-to-let landlords, cryptocurrency investors and non-doms (wealthy expats living in London). Buy-to-let landlords and non-doms have already received a wave of “nudge letters” warning them that they could be subject to investigations. HMRC has also recently confirmed that it will be sending “nudge letters” to cryptocurrency investors soon.

Due to the common myth that cryptocurrencies are totally untraceable, some investors believe that HMRC are unable to find out about gains on crypto investment. This is not the case, with HMRC able to request information on holdings from UK based crypto exchange platforms.

HMRC is likely to be under pressure to ensure that the ‘tax gap’, the difference between the amount of tax that HMRC believes it is owed and the actual amount collected, is as small as possible.

Kevin Igoe, Managing Director at PfP says: “This sharp fall in cash from compliance work comes at a time when the Government is struggling with its finances. Inevitably we are going to see HMRC investigations ramp up in response.”

“It is important that anyone, including buy-to-let landlords and crypto investors, with undeclared tax, comes forward to cooperate with HMRC. This way they can avoid resource-draining tax investigations.”

“In preparation, businesses and individuals should also ensure they have the insurance cover in place to safeguard against the significant impact on finances an investigation may have.”

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