Yesterday (13 January) Parliament’s Treasury Select Committee grilled HMRC’s chief and senior staff about their efforts to tackle tax avoidance, evasion and debt.
MPs referenced TaxWatch research and investigations in questions about corporate tax reliefs, recruitment, penalties for enablers of tax evasion, and the ‘offshore tax gap’. There was good news in some of the responses – but others raised more questions.
Here’s what we learned yesterday.
Offshore tax evasion
As TaxWatch has repeatedly highlighted, HMRC has long dragged its feet on disclosing estimates of the scale of offshore tax evasion. Since at least 2022, ministers have promised to publish an estimate of the ‘offshore tax gap’. In October 2024 HMRC finally published a tiny estimate (just £300 million) for tax lost to one subset of one very basic kind of offshore tax non-compliance: overseas bank accounts held directly in the names of UK taxpayers who didn’t tell HMRC about the interest income from those accounts, but were subsequently identified through bank account information-exchange agreements that started in 2018.
The offshore world is obviously considerably larger and more complex than this, and HMRC now acknowledges that this is not an adequate picture of the whole ‘offshore tax gap’. Last year TaxWatch found that HMRC in fact has a much larger estimate of ‘offshore tax at risk’, but has refused to release it on the grounds that its disclosure could be “misinterpreted” and might “distract officials”.
Transparency about these estimates matters — because what gets measured gets done. How else can we know whether the modest sums raised by HMRC’s efforts to tackle offshore non-compliance — £1.7 billion since 2018, or less than 1 percent of HMRC’s total ‘compliance yield’ — are a significant dent in the problem, or a drop in the ocean?
Luke Murphy MP pressed HMRC witnesses yesterday on HMRC’s reticence to disclose its estimates of the problem. HMRC officials confirmed that “[w]e do internally hold documents and evidence on the nature of particular [offshore tax] risks”, including “some indicative numbers…kind of what might be at stake“.
They came up with a different reason for not disclosing these estimates than those given to TaxWatch last year. Now, it seems, HMRC believes that publishing such figures is a “security issue” which risks encouraging “copycats or people trying to exploit weaknesses”:
We are very careful about what we put in the public domain in the nature of these risks. We don’t want to particularly identify areas that we think people might be exploiting.
That reasoning is quite hard to understand. When HMRC publishes, say, a figure for the amount of VAT fraud they think is taking place in the economy, they are not exactly laying out a manual for how that fraud can be done.
HMRC’s officials also told MPs that their undisclosed estimates of offshore tax evasion couldn’t be compared to a ‘tax gap’ because the estimates constitute
gross exposure [to offshore tax evasion] before we’ve taken any action. So to get to a tax gap, you need to understand both what your exposure is, but also how well you’re mitigating it. And so it’s the combination of those two that give you the tax gap.
That’s true, but trivial: all tax gap estimates work in this way, and HMRC publishes many of them routinely. And HMRC has already published the second of the figures mentioned: how much it has ‘mitigated’ offshore tax evasion of all kinds. What HMRC officials is suggesting to MPs is difficult, is in fact a simple case of subtracting one (already published) figure from one (undisclosed but already estimated) figure. This is basic arithmetic, not a knotty statistical puzzle.
In better news, HMRC officials committed yesterday to provide MPs with a private briefing on their offshore tax risk estimates. TaxWatch hopes that will be a bridge towards at least publishing aggregate figures about how much tax is being lost in this murky and potentially huge area.
More potential good news on offshore evasion: Bobby Dean MP asked why HMRC has never yet applied penalties to enablers of offshore tax evasion, as TaxWatch has highlighted using data from Freedom of Information requests. Introduced in 2017 in the wake of the Panama Papers scandal, the use of these penalties is long overdue. HMRC’s Jonathan Athow responded that
I think we now have one case that is close to being used and several in the pipeline.
We look forward to more details on these.
The right reliefs?
Yuan Yang MP noted that despite UK economic growth and corporate productivity flatlining since the pandemic, claims for corporate tax reliefs have increased by nearly 40 percent, and now cost the public purse more than child benefit (itself the focus of a huge administrative scandal discussed during yesterday’s hearing).
Corporation tax reliefs vs. child benefits (nominal, £bn), 2019-20 to 2024-25. Source: HMRC Annual Report and Accounts, various years.
These ballooning ‘non-structural’ reliefs are mostly tax credits for research and development (R&D), expenditure-based credits for the creative industries, and corporation tax cuts provided by the Patent Box. Yang also noted that the growth of claims for these reliefs has gone hand in hand with a growing industry of advisory firms specifically offering to help companies make relief claims. Often entirely reputably…but sometimes claiming research and development credits for installing a fridge.
HMRC rightly pointed out that they’ve done much to weed out bogus R&D credit claims in recent years, and to rationalize some other reliefs. But HMRC witnesses were unable to say exactly which or how many tax reliefs they monitor and evaluate, and couldn’t point to any instances in which they’d identified poor value for money amongst tax reliefs. This is a serious blind spot when there are tax advisory firms arguing that football players’ salaries are nutritional research costs qualifying for R&D credits. And when pharmaceutical firms are (lawfully) claiming millions of pounds of tax relief intended for UK-based innovation and commercialization, for drugs developed in the USA, manufactured in Italy, marketed from Ireland, and not available to NHS patients.
Bobby Dean MP focused on TaxWatch’s findings about the £2.4 billion Patent Box, which shrinks corporation tax from 25 percent to 10 percent on profits attributable to patents. Intended to stimulate innovation and jobs across the economy, in fact over 40 percent of the Patent Box tax cuts by value go to just five firms; and over a quarter to a single multinational, the pharmaceutical giant GSK. Dean also noted TaxWatch evidence that – contrary to the Patent Box’s objectives – much of the tax relief has been granted by HMRC for products that weren’t developed in the UK and aren’t manufactured here. Meanwhile Chris Couglan MP cited customer surveys analysed in TaxWatch’s recent report showing that most surveyed claimants said that the Patent Box had not stimulated any new innovation, and had not impacted their business or investment decisions.
In response, HMRC’s Jonathan Athow initially insisted that 60 percent of the relief goes to small and medium enterprises, but was then corrected by HMRC CEO JP Marks, who said instead that around 70 percent of Patent Box claimants were small and medium enterprises, according to HMRC’s own assessment. That figure is strictly true, but Mr Marks left out the second half of that HMRC assessment: that the other 28% of the claimants, “classified as ‘Large’…accounted for most of the relief provided (95%)”. This figure, from HMRC itself, casts a very different light on Mr Marks’ claim to MPs yesterday that there is “a sizeable proportion [of the Patent Box relief] for small and medium enterprises”.
Athow also explained the fact that Patent Box relief doesn’t demonstrably stimulate new innovation, and had been granted for economic activity that doesn’t take place in the UK, by saying that the Patent Box isn’t intended for “primary research. It’s there for the exploitation of intellectual property….if the exploitation happens within the UK then that becomes eligible for the [relief]”.
That’s not quite right on two counts. First, since 2016, qualifying for the Patent Box relief has indeed been explicitly tied to where the underlying research and development for the patented technology takes place. And second, while rules were tightened in 2024 to require expenditure qualifying for R&D tax credits to take place in the UK itself, HMRC has explicitly excluded the Patent Box from these conditions in its Patent Box compliance manual.
‘Non-structural’ tax reliefs are now costing the Exchequer some £200 billion a year – equivalent to over twenty percent of the tax take. MPs and taxpayers need clarity — not confused and partial statistics — about exactly how these reliefs work, who is claiming them, and how claims are being policed.
Getting the right people
Since 2024, the government has committed by 2029-30 to adding 5,500 new HMRC tax compliance staff and 1,200 new staff to recover unpaid tax debt. Last September, TaxWatch obtained figures showing that HMRC had recruited just 744 of the promised 5,500 new compliance staff so far, against a target of 1,100 a year. Of those 744 new staff, just 26 were experienced staff who were actually in post, significantly short of a commitment to recruit 100 such experienced staff a year. Meanwhile, as of September 2025 none of the 1,200 new debt management staff had been recruited, and HMRC told TaxWatch it wasn’t expecting to start doing so until 2026-27.
Again, this matters not just for HMRC accountability but for the health of the public finances. These new compliance and debt management staff are expected to bring in an extra £15.6 billion of revenue over the course of this Parliament, including £5 billion annually by 2029-30. If they don’t get recruited, trained and deployed in time, the Chancellor’s ‘black hole’ will be even bigger than thought.
Meg Hillier MP and Luke Murphy MP were keen yesterday for updated figures on new recruits in these specific roles (compliance and debt management). HMRC chief executive JP Marks pointed to the fact that HMRC headcount overall is up by around 2000 over the past year, but promised to write later to MPs with specific updated figures for the promised new compliance and debt management staff, saying only that “we think we’re 200 to 300 head count ahead of our compliance onboarding, [and] well ahead on debt [management].” Good news if so – for this to be the case, HMRC will have had to dramatically increase recruitment of both junior and experienced compliance staff since last September, and to have started on the debt management recruitment which they told us last year they didn’t plan to begin until next financial year.
We hope MPs will also ask about how many more staff they are going to add to these recruitment targets thanks to the £89m promised in the Autumn Budget for yet more staff to collect tax debts. Unusually, the Budget documents didn’t specify the number of new staff that extra funding boost will pay for. If the Treasury Committee is to monitor regularly the progress of HMRC recruitment against targets, as Meg Hillier suggested yesterday, then HMRC needs to put a number on that question too.
HMRC staffing, 2024-25 (excluding Valuation Office Agency). Source: HMRC.
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The government needs to tackle tax non-compliance to balance its books.
New measures to close the ‘tax gap’ – the revenue lost to tax avoidance, evasion and other non-compliance – were the November Budget’s third-largest revenue-raising measure. Together with policies and extra funding announced in Autumn 2024 and Spring 2025, Rachel Reeves is now expecting to raise an extra £8.8 billion annually by 2029-30 from improving tax compliance and tackling unpaid tax debts.
All governments are tempted to use shrinking the tax gap and the tax debt balance as magic money trees: especially when the bulk of revenue increases are projected for the final years of a parliament, when earlier targets may have been forgotten. Making these projections real requires strategy. Resources. Capable and experienced staff.
We hope MPs will continue to keep a watchful eye on all three.
Expected additional tax revenues from measures to tackle tax non-compliance in Autumn Budget 2024, Spring Statement 2025 and Autumn Budget 2025 (nominal, £m). Source: HM Treasury/OBR
