According to a recent National Audit Office report, HMRC has met its targets to raise more tax revenue in the short-term; however, an estimated £16 billion is lost to tax fraud each year. The report states that HMRC needs to improve the way it uses data and analysis to understand the effect of its actions to tackle fraud.

This report is the first in a series of reports which will evaluate how effectively HMRC tackles different aspects of tax fraud. Reducing the amount of tax that is lost due to tax fraud is a high priority for HMRC.

In 2014/15 HMRC reported £26.6 billion additional revenue from all its compliance work, including work to tackle tax fraud but also work to tackle other parts of the tax gap like error and tax avoidance. HMRC has only partial data on how much of the total yield is derived from its work to counter tax fraud. For example it has more complete information on its work to tackle organised crime than tax evasion. The National Audit Office estimates that between 30% and 40% of total compliance yield is generated by HMRC’s activities to tackle tax fraud, but this is an estimate based on partial evidence.

HMRC assesses that two groups, smaller businesses and criminals, are responsible for 17 of the 21 biggest tax fraud risks. Of these, eight relate to organised crime and nine involve medium-sized, small or micro-businesses.

HMRC believes these businesses are responsible for tax losses of £17 billion, almost half of the total tax gap, but does not consider its internal estimate of how much of this is the result of tax fraud robust enough for publication.