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RSM's Scott Harwood considers HMRC's continuing battle with the Tax Gap.

A former Top Gear mechanic, eco-investors, a charity treasurer and fraudsters selling research into an HIV cure were among the list of over 600 individuals successfully prosecuted by HMRC in 2019.

HMRC recently published a list of its top 10 prosecutions in 2019 which include:

• A Berkshire-gang jailed for a total of 46 years for a £34 million supply-chain VAT fraud and laundering £87 million from selling illicit alcohol
• Five people jailed for 16 years for selling 4.8 million litres of illicit fuel from their petrol station in Sussex
• A mechanic who helped build and modify cars on TV show Top Gear was jailed for facilitating the attempted escape of a pair involved in a VAT scam
• The prosecution of two fraudsters who duped investors into participating in a fabricated £60 million HIV research and nature conservation tax saving scheme

A staggering £5 billion has been collected as a result of HMRC’s criminal prosecutions, broadly matching the results from 2018.

Whilst this initially looks like great news for the Exchequer, another viewpoint is tax fraud remains prevalent and commonplace in the UK. With the latest tax gap figures showing an increase to £35 billion per year, it seems HMRC still have a long way to go, to plug this gap.

Understandably, HMRC’s Fraud Investigation Service has limited resources, and contrary to the popular belief that large corporates are the worst offenders, it is individuals and small businesses that account for two-thirds of all unpaid tax. HMRC would need a small army to identify and prosecute everyone who dodges their taxes.

For this very reason, in 2019 and armed with £1.3bn budget, HMRC introduced digital tax reporting for most businesses under the banner of Making Tax Digital for VAT (‘MTD’). The first phase of MTD is HMRC’s initial step into combating tax errors through technology, to report figures directly from a company’s accounting data. The overall objective is to remove the influence of human input which, HMRC believes, accounts for £3.4 billion of tax misdeclarations each year.

It has been almost a year since MTD was introduced, so the question is, has MTD had any impact?

When asked, an HMRC spokesperson said: “It is not currently possible to evaluate the impact of MTD on the tax gap”

MTD for VAT was originally forecast to yield a total of around £1.2bn in additional tax revenue over the next five years. The original proposals have been watered down including the continued use of spreadsheets and manual adjustments, so these estimates may well turn out to be grossly optimistic.

Only time will tell whether MTD – with a planned rollout due across other taxes too – will help HMRC win the battle against the tax gap. In the meantime, it looks like HMRC’s fraud team will continue to be very busy.