The UK Parliament’s Public Accounts Committee has published a report on 12 February 2025 cautioning that the actual cost of tax evasion is probably being underestimated.

HMRC not sufficiently curious on true scale of evasion, with no strategy for tackling it.

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• Public Accounts Committee

The true cost of tax evasion is likely being vastly underestimated, as loopholes in the current system make it all too easy for fraudulent behaviour to go unchecked. In a report released today, the Public Accounts Committee (PAC) is calling for a clear strategy to tackle tax evasion and increased powers for public bodies to address fraud.

HMRC estimates that tax evasion cost GBP 5.5 billion in lost revenue in 2022-23, 81% of which could be attributed to small businesses. But the introduction of legislation in 2021 making online marketplaces liable for VAT from overseas sellers led to GBP 1.5bn in additional taxes per year, five times greater than HMRC predicted.* The PAC is therefore concerned HMRC may have underestimated the level of evasion occurring and is calling on HMRC to assess the reasons behind this gap. The report is concerned by the lack of curiosity shown by HMRC to investigate the issue, further noting that its inquiry heard that anywhere between 5% and 20% of UK registered companies were fraudulent in 2023.

Despite the vast sums lost, HMRC does not have a clear objective or strategy to tackle tax evasion. The issue appears to be exacerbated by a lack of collaboration to date between HMRC, Companies House and the Insolvency Service. The PAC is calling for HMRC to set out a clear strategy for tackling evasion and deliberate non-compliance, while noting that the current planned timeline of five to ten years to tighten company registration requirements is too far in the future.

The introduction of the Economic Crime and Corporate Transparency Act 2023 granted Companies House greater powers to clean up the company register and remove fraudulent information. With identity verification set to become mandatory by autumn 2025, it is clear steps are being taken in the right direction. But the PAC is concerned measures are not strong enough, as Companies House is still unable to verify addresses of registered companies, which the PAC fear will mean it shall remain all too easy for registrations for fraudulent means to continue.

The PAC was disappointed to learn that HMRC has continued to bombard a taxpayer in Cardiff with letters seeking unpaid tax as a result of businesses fraudulently registering their home address for VAT purposes, despite the Committee having pressed this issue for over a year. The PAC fear this case unfortunately illustrates a wider issue of HMRC’s VAT registrations processes being far too open to abuse, with the tax authority not exploring options to tighten controls.

The number of prosecutions resulting from HMRC’s criminal investigations reduced from 749 in 2018-19 to 344 in 2023-24. During the same period, the Insolvency Service disqualified just 7 directors for phoenixism. The PAC notes that it does not appear that the mechanisms in place bear down on tax evaders and rogue directors who flout insolvency rules are being used to their fullest extent.