Policy paper

Ensuring the correct tax is paid

Updated 5 June 2020

HMRC’s aim is for everyone to pay the tax that is legally due, no matter who they are. Our role is to help people to pay the right tax through education and well-designed systems, and to step in when tax is at risk of not being paid.

We do this in an environment where the collection rate is already high: almost 95% of the tax legally due is paid. Last year alone, we secured just under £628 billion. While the proportion of tax that is uncollected has remained broadly static for the last few years, the cash value of that uncollected tax has increased as the UK economy has grown. Put simply, there is now more money that should be collected.

We are constantly learning and adapting. Our approach has developed in response to social, economic and technological changes, coupled with learnings from our partners in other tax authorities.

Our own data, and evidence from around the world, suggest a number of factors influence whether someone pays the right tax, which include:

• whether they understand their obligation
• how easy it is to make payments
• how difficult it is to make mistakes
• whether they believe others are paying the right amount
• if they believe there are genuine consequences for wrongdoers

Our job is to be impartial and ensure that everyone plays by the same rules. Ultimately, we are the guardians of a tax system that relies on public trust. That trust goes hand-in-hand with an understanding of HMRC’s reach and power: honest taxpayers, rightly, want to know we will step in to enforce the rules where necessary, creating a level playing field for individuals and businesses.

That public trust must be maintained by the way we exercise our powers. It is vital that there is appropriate oversight and statutory safeguards that mean people can log complaints and dispute our decisions. Your Charter sets out that we will deal with customer complaints and appeals quickly and fairly, and that we are dedicated to protecting your information.

Our approach

The most effective way we can ensure the right tax is paid is through the overall design of the tax system. A well-designed system prevents non-compliance before it can occur, while making things easier for taxpayers and allowing HMRC to focus our resources where they can make the most difference.

The most straightforward and error-free form of tax collection is PAYE. Because the tax is withheld at source and collected by employers on our behalf, most employees don’t have to do anything about it. As a consequence, more than 99% of the tax legally due is paid.

Our work covers 45 million individuals and 5 million businesses. The most efficient way to get tax right across these vast groups is for HMRC to guide the taxpayer by intervening before anything has the chance to go wrong.

That includes things like prompts built in to our online Self Assessment system, which flag when a customer’s entry is out of line with what we expect to see. It also includes the pre-population of online forms with information already held by HMRC, including that received from third parties, as we do with bank data on interest earned.

It also includes creating policies that make it easy for people to do the right thing. Our aim is to design the tax system in a way which reduces the possibility of making a mistake, and in a way that makes some historical forms of non-compliance nearly impossible.

For the majority who do try to get their tax affairs right, our strategy is to support them with educational material and helpful, responsive customer service, whether that’s on the phone, face-to-face and increasingly online. If customers need extra help because of their circumstances, HMRC offers extensive additional support. There is more information in the HMRC issue briefing: support for customers who need extra help.

When issues come up, our aim is to work with customers promptly and professionally so we can get them back on the right track. It’s everyone’s own responsibility to get their tax right, but we’re here to help.

The overall quality of the customers’ experience when they deal with us is an increasingly important part of our approach. Customer trust is founded on the quality of those interactions, and on our ability to recognise the very real human problems that sometimes lie behind unpaid tax. It is vital we tailor our approach to each customer and their particular situation.

HMRC’s response to COVID-19 is an example of this tailored approach. The outbreak has pushed many of our customers into a difficult position, which requires us to change some of our processes and policies, including the approach we take to recovering tax debts. This means we have been able to prioritise support and give legitimate businesses and individuals the breathing space they needed.

How we identify and act on tax at risk

Our approach is underpinned by cutting-edge data analysis, which we use to identify where tax is most at risk of not being paid and design tailored, targeted and proportionate interventions to address it.

Decisions on when and where to intervene are not driven solely by the amount of money that we will recover; we also consider the broader impact our interventions will have on compliance in the tax system as a whole. Fairness also helps us decide when we step in - it’s important for individuals and businesses to know we cover all parts of the economy impartially, so they can be confident they aren’t being disadvantaged.

While we don’t have a problem with tax planning that is within the intent of the legislation, we won’t hesitate to act against contrived arrangements that seek to artificially minimise tax liabilities, whether it’s multinationals diverting profits out of the UK or tax avoidance schemes used by individuals. We’re increasingly focusing on measures to tackle issues at source, including focusing on the small minority of tax advisers who make money by promoting tax avoidance and even enabling fraud.

We won’t hesitate to use our criminal and civil powers where we believe a business or individual is trying to cheat the tax system. After all, this cheats the public out of money that goes into those services they rely on every day.

HMRC will conduct criminal investigations and seek criminal prosecutions if it is in the public interest, particularly where the behaviour displayed is very serious or where a criminal prosecution will act as a strong deterrent. Our focus is on reaching the right outcome for the UK, rather than chasing arbitrary targets for arrests and prosecutions.

We also protect the tax system from attack by organised criminals who deliberately set out to defraud the UK public of billions of pounds. This work has never been more important than during the COVID-19 outbreak - we are focused on making sure criminals cannot defraud the system’s support schemes and on protecting people from deceptive scams and exploitation.

Transforming our approach

HMRC must continue to adapt and grow as we deal with a changing world - one that will increase some tax risks, reduce others, and throw entirely new challenges at us.

We aim to anticipate coming changes in society, business, economics or the environment. For example, increased automation, demographic fluctuations and COVID-19 will have an impact on the global economy and the tax systems across the world.

We can’t solve today’s problems with yesterday’s solutions, so HMRC and the government are always exploring modern, innovative responses. As well as developing new solutions, HMRC will continue to consider how best to use our resources to address these new challenges over the coming years.

It’s important to recognise that while HMRC plays a vital role as a trusted, modern tax authority, our role is to administer the tax system; we can’t transform that system on our own.

It’s for government to set the tax rules and, while HMRC advises on policies, the authority to change the law rests with ministers and, ultimately, Parliament. However, we want to be more open about the challenges we face as a tax authority, and the options that are available to us all. We want to do more to work with and consult our customers and stakeholders, so we can design a tax system that’s fit for the future together.