HMRC to recruit 5,000 more tax officials

Chancellor Rachel Reeves has confirmed plans to recruit 5,000 more tax officials over the next five years to help reduce the almost £40bn tax gap between the amount of money owed and what is actually collected. We will see an immediate bolstering of HMRC staff with 200 new compliance officers set to start work in November.

This increase suggests there will be a significant rise in general compliance activity across the board for businesses and individuals as the government seeks to collect an additional £5bn each year. Ministers calculate that each new compliance officer equates to an extra £1.1m in tax revenue. That money is badly needed because in monetary value the tax gap is the biggest it has been since 2005/06.

Labour laid out its plans to close the tax gap long before the election in a document called ‘Labour's Plan to Close the Tax Gap’. It promised to recover more tax revenues from those trying to avoid paying, invest in technology to improve the customer experience, and restore a genuine deterrent to tax evasion.

Improving customer service

The plan to improve customer service is intended to bring in more tax receipts because ministers believe poor service has meant more and more taxpayers making errors in their tax returns. To help them, the government has promised to invest in digitisation for customer service and in updating technology within HMRC.

Good customer service makes it easier to pay the right amount of tax first time, but a deterioration has been evident in the amount of time people have to wait on the phone to speak to an advisor. The proportion of callers waiting more than 10 minutes rose from 14.6% in 2017-18 to 62.7% in 2022-23.

Tackling inefficient processes

Part of the reason for this is that call handlers are spending too much time dealing with issues callers should be able to solve themselves online. Spokespeople have said that in the last tax year, HMRC received more than three million phone calls about resetting an online password, getting a tax code or getting a National Insurance Number. They added that 500 people had to work full time on that volume of calls when they could have been working on more complex cases or supporting vulnerable taxpayers.

Existing digitisation programmes such as Making Tax Digital (MTD), which focuses on businesses’ tax affairs, are designed to improve customer service and compliance. However, in June 2023 the National Audit Office said that while MTD had delivered some benefits, there had been very substantial delays, costs had increased and HMRC had not demonstrated value for money.

Creating a deterrent

Other plans announced by Labour before the election included ring-fencing a portion of so-called “blockbuster” funding to be used on strategically important criminal cases to ensure there is a strong deterrent against tax evasion.

The government has also said that in addition to resourcing, it is considering legislative and regulatory changes to help tackle non-compliance. For example, it could require a wider range of tax schemes to be reported to HMRC under the disclosure of tax avoidance schemes (DOTAS) or strengthen HMRC’s powers to enforce payment of tax in an investigation case.

We can expect more announcements with the looming Autumn Statement on 30 October and in the months ahead as the Chancellor seeks to recoup more of the money that has fallen between the cracks of a fragile tax system.