People aren’t paying their taxes (Image: Getty)
The taxman is failing to collect nearly £40 billion owed to the Treasury every year.
But officials at HM Revenue and Customs (), which is responsible for tax collection, have decided to cut back the number of people prosecuted for tax fraud.
MPs have now demanded they think again and warned that failing to take criminal action will make tax evaders think they can get away with it.
Sir Geoffrey Clifton-Brown MP, Chair of the House of Commons Public Accounts Committee, said: “ has now secured more funds to allow it to pursue what’s owed to it, and has a welcome new goal to reduce the gap in unpaid tax. We would urge it to use its new resources not to just go after low-hanging fruit, but to do more to recover older debts lest they become uncollectable, as well as to better understand what more may be hidden offshore.
“Further, if it is serious in its plans to reduce its prosecutions, it should also explain what the best means of deterring criminal tax evaders may be.”
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The difference between the amount of tax owed and the amount actually paid, known as the “tax gap”, increased from 38.1 billion in 2021–22 to £39.8 billion in 2022–23. It means around 5% of all tax owed, one pound in every 20, was not paid.
Some of the money will eventually be recovered, but £5 billion is simply written off each year.
In a new report, the Public Accounts Committee said much of the unpaid was a result of “small businesses’ cash flow issues”, with firms genuinely unable to pay – partly because of a backlog of insolvencies caused by the pandemic.
But MPs said they were worried that the number of prosecutions brought by was falling.
They said: “Its use of criminal investigation and prosecution is decreasing, and there were only 344 criminal prosecutions in 2023–24, compared with 691 in 2019–20, with focusing on the most serious and high-value cases.
“We are concerned that is not using the criminal enforcement tools at its disposal.”
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The says prosecutions are not the most effective way to ensure tax is paid. Chief Executive Sir Jim Harra told the MPs: “Prosecutions are not necessarily the best way in all cases of getting the yield.
Our approach to using criminal investigation is that, while we reserve the right to use it in any case of deliberate evasion, we use it for the most serious cases where we believe it is necessary and will have the right impact.
“Our deliberate strategy in recent years has been to use our fraud investigation service in higher-value cases. Although you will see a smaller number of cases, investigations and prosecutions, actually the average value per case is significantly higher, and the yield that we are getting from the fraud investigation service is therefore holding up or better, despite the reduced caseload.
That is the strategy. That does not mean that we do not work the other cases, but we do not use criminal investigation as the means of tackling them.”