The National Audit Office (NAO) today published its report on tax compliance during and following the pandemic, which finds that the tax gap could grow further rather than shrink in the coming years.

HMRC moved thousands of staff in its Customer Compliance Group (CCG) to Covid-19 support schemes, reducing capacity for tax compliance work. Throughout 2020-2021, an average of 1,356 CCG staff were redeployed to the Covid schemes, peaking at 4,396 in May 2020.

HMRC has conducted substantially fewer enquiries into suspected non-compliance since the pandemic began. It closed 29% (103,000) fewer cases in 2020-21 compared with the previous year and opened 32% fewer (114,000).

Gareth Davies, head of the NAO, said: “HMRC had to move swiftly to reallocate resources to Covid-19 schemes, as the circumstances of the pandemic demanded. However, this directly affected its ability to investigate cases of people and businesses not paying the right tax.

“There is now a risk that more people ultimately fail to pay the right tax or escape investigation or prosecution. It is concerning that HMRC’s planning indicates that non-compliance may grow following the pandemic. The next two years are critical, and swift action is likely to be needed to stem potential losses.

“There is little doubt that HMRC’s compliance work offers good value for money, but it needs to evaluate its performance more consistently. Improving the effectiveness of HMRC’s compliance work can help maximise the amount of money available for public services in a challenging economic context.”