MP’s question HMRC on ongoing work, focussing on the Tax Gap

During the General Election, Labour set out its plans to raise around £5 billion by the end of this Parliament by Closing the Tax Gap. Central to these plans were boosting capacity in HMRC through more investment in staff and modernising systems and data. These plans were confirmed in the Autumn Budget 2024.

On 27 November 2024, the Treasury Committee (the Committee) had its first opportunity since the General Election to scrutinise the work of HMRC. Witnesses Sir Jim Harra (First Permanent Secretary and Chief Executive at HMRC); Justin Holliday (Chief Financial Officer and Tax Assurance Commissioner at HMRC) and Myrtle Lloyd (Director General Customer Services at HMRC) were questioned about the work of the department, including the plans above. So what more did we learn about how HMRC will use their additional investment to tackle the tax gap? 

HMRC have been given an additional £1.6 billion in funding over the next five years, which will be used to recruit an additional 5,000 compliance officers and 1,800 additional debt management officers. Sir Jim confirmed that the increase in staff should raise an additional £4.7 billion per year in additional revenue by 2029/30, as set out in the Autumn Budget costings.

The additional compliance officers will be hired in tranches over the five-year period to make it more manageable to train and mentor them. 200 have already been recruited and a further 300 will be recruited by the end of the financial year.

In respect of the 1,800 additional debt management officers, 1,200 are actually already in post: they had been due to leave at the end of the financial year due to expiry of funding, but the additional funding from the Autumn Budget means they can stay in place. Having trained, proficient staff in situ means HMRC can ‘hit the ground running’ on their debt collection targets. The additional 600 officers will be recruited by the end of 2027.

These new recruits do not include additional recruitment for attrition: over five years Sir Jim said HMRC would probably recruit, train and mentor 12,500 people in total. He confirmed that by the end of this Parliament, 30 percent of HMRC’s compliance officers would be recently trained, or still be in training. He noted that there was likely to be a dip in compliance yield for a period as more experienced compliance officers would be taken away from the frontline to train the large numbers of new recruits. Despite this Sir Jim said HMRC have a high level of confidence that deploying more compliance resources will result in more yield.

Investment has also been provided to modernise IT and data systems to improve HMRC’s productivity and improve taxpayers’ experience of dealing with the tax system.

Key to this is encouraging more taxpayers to use HMRC’s app. Sir Jim confirmed that last year the HMRC App had 3.8 million users, who used the app a combined 88 million times. This represented a 64 percent increase compared to the previous year. As of today the app has over 4 million users and HMRC are currently running a campaign to promote the app to 18 to 34 year olds.

Sir Jim confirmed that while HMRC had increased the number of telephone agents, telephony operations are being scaled back as two-thirds of calls received by HMRC telephone advisors could have been resolved digitally. 86 percent of customers are willing to engage with digital methods, although Sir Jim accepted that this statistic drops significantly when issues were more complex or if customers encountered problems. He stressed that although customers first stop should be digital self-service, there will be a telephone adviser available if customers cannot resolve their issues digitally.

Sir Jim noted that Making Tax Digital (MTD) for VAT has proved effective, with millions of VAT returns being processed and good feedback received from customers. There is also evidence that the system is reducing VAT errors. The next phase is MTD for Income Tax, which is currently being user tested and will be mandated for customers in tranches beginning in April 2026. Sir Jim noted that this is later than HMRC would have liked, but that implementing MTD for Income Tax is far more challenging than for VAT because of the different population of taxpayers.

Sir Jim acknowledged that the greater digitisation of HMRC increases the risks associated with cyber-attacks from hostile actors. HMRC are constantly looking at how they can best use the financial investment they have been given, not only to close the tax gap, but to make their IT estate more resilient to potential threats. While progress is being made, and no cyber-attacks have successfully defrauded HMRC, Sir Jim described this as a ‘never-ending battle’.

HMRC have long used ‘traditional’ AI to help identify areas of risk and to analyse vast amounts of unstructured data (the Panama papers being one such example). HMRC have some use cases for generative AI (AI used to produce text, audio or images) but Sir Jim explained this is very new and unproven technology, and HMRC need to make sure it can be used safely and effectively. Current use cases are therefore aimed at making HMRC officers more productive, rather than dealing directly with customers. For example, summarising call transcripts, aggregating guidance or in quality assurance or complaints handling processes. HMRC are considering use of a customer-facing AI chatbot, but extensive testing will be undertaken to ensure it is safe and effective in assisting customers.

As the Committee pointed out, the additional income anticipated from closing the Tax Gap is significant. If this does not materialise, the Government will not come close to meeting its fiscal rules. HMRC have a central role to play in this process. Sir Jim maintains that the target compliance yield is ‘entirely achievable’ and, although it will not be easy, with more resources and investment in systems there is definitely still scope to get more from the tax gap.

For further information please contact:

• Sharon Baynham
• Stefanie Redmond