The cost of tax

HMRC may not have as many friends as it claims to have ‘customers’, but is it value for money?

In the United States, there has been considerable media attention on DOGE, the so-called Department of Government Efficiency, spearheaded by Elon Musk. Its efforts to find savings in government expenditure have already resulted in a rash of federal court cases challenging the legality of its action.

In the UK, rooting out poor value for government money does not rely on a department named after its boss’s favourite meme coin. Instead, there are a variety of long-established bodies such as the National Audit Office (NAO) which published a report on HMRC’s administrative costs in February.

The NAO’s research produced some interesting nuggets:

In 2023/24, the UK tax system raised £829 billion with an operating cost of £4.3 billion for HMRC, which is approximately 0.51 pence per £1.00 of revenue. HMRC’s costs have risen 15% faster than inflation since 2019/20, but so too has the amount of tax it collects.
While HMRC knows how much it spends on tax administration, it is much less aware of the costs it imposes on its taxpaying ‘customers’. The NAO found that for businesses, HMRC’s estimate was £15.4 billion. However, the NAO thought that this figure was likely to be an understatement as HMRC had not undertaken research into the time taken by businesses to comply with their tax obligations since 2015. As far as individuals were concerned, HMRC has no equivalent estimate.
Of the 240 tax policy changes between 2022 and 2024 that warranted detailed notes from HMRC, the compliance costs of only 16 were deemed to have “significant financial impact” on businesses and just two on individuals. The remaining 222 were viewed as incurring “negligible additional costs” even though, as the NAO noted, their cumulative impact could have been significant.
Each member of HMRC’s compliance staff generated £1.27 million of revenue in 2023/24, but in real terms that was about 10% less than the average in the five years before the pandemic.

The NAO recommends that “HMRC must better understand how the changes it makes will flow through to savings in tax administration for all parties and reduce unnecessary complexity in tax regimes.” While we all wait for that sunny day, one area to which governments will continue to pay attention is the extra revenue each additional compliance officer can generate. You have been warned.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

The cost of tax

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