HMRC adds 3,000 more compliance staff and is set to target inheritance tax errors

HMRC has been beefing up its compliance department in a bid to reverse a sharp drop in tax revenue, This Is Money can reveal.

New data reveals the tax office has added more than 3,000 more staff to its compliance division since the 2021/22 financial year, but experts warn this will do little to help business owners.

A Public Accounts Committee report earlier this year found that tax revenue from HMRC’s compliance work had fallen from an average of 5.2 per cent before the pandemic to 4.2 per cent in 2021-22.

It marks the lowest level in more than a decade and means the tax office has received £9bn less over the past two years, largely due to fraudulent use of Covid schemes.

It also found that HMRC compliance staff were “less productive due to social distancing restrictions and the loss of more experienced staff”.

But it appears the tax office has been trying to strengthen its compliance team.

Data obtained by accounting firm Price Bailey found that HMRC has hired 3,084 more staff for its customer compliance unit since 2021/22. It marks a 12 percent increase in a single year.

Andrew Park, partner at Price Bailey, said: ‘The decline in enforcement activity is undermining the deterrent effect of HMRC’s work.

“There is increasing pressure on HMRC to catch up on enforcement activity and this sharp increase in staffing levels suggests that the number of targeted investigations should increase significantly over the coming years.”

The number of staff working in the top three grades, meaning they are likely to have more compliance experience, has increased from 3,197 to 3,541 since 2021/22.

The data also shows that the number of tax inspectors in the Fraud Investigation Service, an elite unit that relies on client compliance, has added 539 employees in the last year, bringing the total to 4,925.

Price Bailey says the staff hired “will likely be experienced private sector tax professionals and will lead complex tax consultations.”

“It is reasonable to expect a lag between the allocation of additional resources and their seeing fruits,” Park said.

“HMRC now has significantly more enforcement resources than before the pandemic, so it is difficult to see how HMRC can fail to return enforcement activity to pre-pandemic and post-pandemic levels over the next one or two financial years.” .

An HMRC spokesperson said: ‘Our job is to collect the taxes people owe. This investment will further improve our ability to combat fraud and ensure fairness in the tax system.’

What will this mean for small businesses?

Compliance is essential to HMRC’s work and ensuring taxpayers pay the right amount of tax. Park says “it is in everyone’s interests for HMRC to tackle non-compliance and they now have much more staff for that purpose.”

But what will this mean for small businesses? Should they expect greater scrutiny of their affairs?

We asked This Is Money’s resident tax expert, Heather Rogers of Aston Accountancy, for her thoughts on where HMRC will turn its attention in the coming months.

Anti-money laundering is likely to be high on the agenda as it is a core objective of the Fraud Investigation Service. He also anticipates more attention will be paid to inheritance tax errors following reports that the tax office imposed fines worth £2.3 million following incorrect valuations.

Park says: ‘In practice, average companies will be investigated more frequently… there will be fairly routine investigations. If your affairs are in order, you will have much less to worry about.

The decision to bolster its compliance team while also closing some of its customer service helplines will surprise some.

While the self-assessment helpline has now reopened, This Is Money has written extensively about the long waits business owners have had to face in recent months.

We recently highlighted a case where HMRC gave a reader a £38,000 note, only to discover it was a typo. He was then told that he could only contact HMRC by post.

Staffing in customer service departments has continued to decline: the average number of employees has fallen from 25,500 to 19,500 in five years.

Rogers says: “It’s really ironic that with their current poor service and the recent signing of a five-year IT contract to further develop their digital services and make them the first point of contact that businesses and the public have with them, they don’t seem interested in prevention and helping people do it right.

‘In the old days, with the local offices, the local inspectors knew the companies and the accountants – the good ones and the less organized ones, say, and this helped compliance.

“Now it’s a huge, unwieldy, inefficient government machine that thinks technology is the answer, followed by harsh attacks on businesses and individuals, many of whom are doing the best they can.”

He adds: ‘HMRC needs to work with people and businesses, not against them; Those who commit fraud and tax evasion deserve severe penalties and this is the area they must focus on, as do those who willingly collaborate in money laundering.

“However, it appears that HMRC are on a ‘revenue-generating’ journey and are adopting the same attitude towards those who are simply doing their best to do well.”

Similarly, Park believes the move will do little to improve customer services: “It’s good for the Treasury, but not for anyone who needs help from HMRC.”