Corporate report

HMRC’s compliance yield: how HMRC reports upstream yield

Published 5 November 2020

1. Introduction

HM Revenue and Customs (HMRC) carries out a significant amount of activity each year to promote compliance and tackle non-compliance, including legislative changes, educational activity and compliance interventions.

The size and impact of this activity is reported using our compliance yield measure. While most of the tax revenue is paid to HMRC without the need for further intervention, some of the tax revenue is only received as a result of specific compliance actions undertaken.

Compliance yield measures the effectiveness of these compliance and enforcement activities. It is one of HMRC’s main internal performance measures and is used to agree targets with HM Treasury for spending on compliance work.

It comprises cash receipts expected, revenue losses prevented and estimates of assessed tax for future accounting periods as a result of compliance activities completed in the year.

For the last few years, compliance yield has been recorded and reported under the 5 classifications listed below:

• cash expected
• revenue loss prevented
• future revenue benefit
• product and process (P&P)
• accelerated payments

In 2019 to 2020, we have started reporting compliance yield under a sixth category: upstream operational.

2. Background

Compliance yield can be classified as either upstream or downstream compliance yield. Downstream yield is scored as a result of activities undertaken after the non-compliance has occurred. Upstream yield is scored from activities that take effect to stop the non-compliance from occurring in the first place.

2.1 Product and Process yield

The recording of P&P yield was introduced in 2011 to 2012 to reflect where we make improvements to our ‘processes’, as well as legislative changes made to close tax loopholes and clamp down on avoidance and evasion – our ‘products’.

P&P yield is only reported where we can demonstrate additional tax revenues from increased compliance and does not include new taxes or changes of rates in existing taxes. P&P yield is different to upstream operational yield; P&P yield is led by legislative and process changes, whereas upstream operational yield is led by a range of operational activities such as education, nudges and prompt campaigns.

P&P yield includes the estimated annual impact on the net tax receipts of changes to tax law that reduced opportunities to avoid or evade tax.

Whilst an estimate, this is subject to independent scrutiny by the Office for Budget Responsibility. P&P has always been reported as a separate yield category in the annual report and other publications, alongside the downstream categories for Cash Expected, Revenue Loss Prevented, Future Revenue Benefit and Accelerated Payments.

To make the distinction between upstream and downstream yield clearer, from 2019 to 2020 we will refer to P&P yield as upstream P&P.

2.2 Upstream operational yield

Upstream operational yield is the estimated impact of operational activities undertaken to promote compliance and prevent non-compliance before it occurs through a range of activities such as education, nudges and prompt campaigns.

This is different to upstream P&P yield which is led by legislative and process changes. However, similarly to Upstream P&P yield, it is classified as upstream because it prevents the non-compliance from occurring.

Upstream operational yield was negligible until 2017 to 2018 but, in that year, and in 2018 to 2019 it was reported as part of the downstream cash expected category. This way of reporting meant that upstream operational yield was not identifiable in our publications, despite becoming an increasingly significant part of our activity.

3. New presentation

HMRC started reporting Upstream Operational Yield as a separate yield category from quarter 4 of 2019 to 2020. For the 2019 to 2020 Annual Report and Accounts it will be presented as a separate yield category that includes all upstream Operational yield for the year. P&P yield will be referred to as Upstream P&P yield.

The advantages of this presentation are that it:

• clearly identifies significant growth of upstream operational yield
• allows identification of upstream and downstream yield as separate types of compliance activities
• is a simple representation of this type of compliance yield
• allows backward comparability as previous years’ cash expected will equate to the sum of cash expected and upstream operational going forward

For historic comparability, the following charts show how much upstream operational yield would have been reported in past years, had it been separately identified rather than part of the cash expected category.

3.1 Previous presentation

Yield category (£m)	2017-18	2018-19
Cash expected	10,326	13,138
Revenue losses prevented	9,696	9,298
Future revenue benefit	6,080	7,632
Upstream product and process yield	3,373	3,719
Accelerated payments	817	283
Total	30,292	34,070

3.2 2019 to 2020 and future presentation

Yield category (£m)	2017-18	2018-19	2019-20
Cash expected	10,326	13,138	9,042
Upstream operational yield	-	-	4,058
Revenue losses prevented	9,696	9,298	10,551
Future revenue benefit	6,080	7,632	8,998
Upstream product and process yield	3,373	3,719	4,187
Accelerated payments	817	283	113
Total	30,292	34,070	36,948

Note: figures for 2019 to 2020 may not sum due to rounding.