HMRC, the British customs and tax authority, has been quietly beefing up its compliance battalion in a bid to stem a sharp decline in tax revenue. The strategy has seen the tax office add over 3,000 new recruits to its compliance division since the 2021/22 financial year. Before you start contacting your accountant, the majority of the new staff will be working on issues involving fraud and Covid schemes. Or perhaps do call the accountant.

Bolstering the Tax Arsenal

A recent report from the Public Accounts Committee laid bare the concerning trend: tax revenue from HMRC's compliance efforts plummeted from an average of 5.2% before the pandemic to a mere 4.2% in 2021-22. That's the lowest it's been in over a decade, resulting in a hefty £9 billion less flowing into HMRC's coffers over the past two years. The blame? In no small part, it falls on the fraudulent exploitation of Covid relief schemes. That's a lot less interesting than offshore havens and the like.

Moreover, the report pointed out that HMRC's compliance staff suffered from reduced productivity due to the dreaded social distancing restrictions and the departure of experienced hands. Clearly, the tax office had its work cut out. Turns out that HMRC staff weren’t too good at the old working from home.

To counteract this decline, HMRC appears to be making a concerted effort to bolster its compliance task force. Data procured by accountancy firm Price Bailey unveils the numbers: a staggering 3,084 new recruits have joined the HMRC's customer compliance unit since 2021/22, marking an impressive 12% surge in a single year. That's no small feat. It appears that HMRC is relying on mere mortals, rather than following the American example of using AI.

Andrew Park, a partner at Price Bailey, said, “The drop off in compliance activity is undermining the deterrent effect of HMRC's work. There is growing pressure on HMRC to catch up on compliance activity and this hefty increase in staffing levels suggests that the number of targeted investigations should significantly rise in the coming years.”

An Elite Squad: The Fraud Investigation Service

Notably, the data also highlights the expansion of the staff count in the three highest compliance grades. These individuals likely possess more extensive experience in the field. Their numbers have swelled from 3,197 to 3,541 since 2021/22. Additionally, the tax inspectors of the Fraud Investigation Service, an elite unit nestled within customer compliance, have recruited an additional 539 personnel in the past year, reaching a total of 4,925. We are wondering what an elite taxman (person) looks like. An extra sharp pencil? Super shiny calculator?

Coming to our rescue, Park suggests that these new recruits are likely to be seasoned tax professionals from the private sector, tasked with leading intricate tax investigations. While there may be a lag between allocating additional resources and seeing tangible results, Park remains optimistic. He believes that with a substantially bolstered compliance team, HMRC is poised to restore enforcement activity to pre-pandemic levels and possibly even surpass them in the next one or two tax years.

In response to the surge in compliance personnel, an HMRC spokesperson stated, "Our job is to collect the tax people owe. This investment will further enhance our ability to tackle fraud and ensure fairness in the tax system."

So, for those with a penchant for tax dodging, the party might soon be over. The (elite) taxman cometh.