HMRC sees tax revenues fall by £27.9bn due to Covid impact

The NAO said the economic impact of Covid caused a ‘significant reduction’ in tax revenues in 2020-21

HM Revenue and Customs’ (HMRC) total tax revenue fell by £27.9bn in the financial year 2020-2021 due to the impact of Covid-19, the National Audit Office (NAO) has revealed. 

HMRC reported total tax revenues of £608.8 bn in 2020-21, down by 4.4% compared to 2019-20 figures of £636.7bn. 

Additionally, HMRC estimates that the yield from its tax compliance activities in 2020-21 was down 18% compared to 2019-2020 which was £30.4bn. 

The yield was reportedly affected by the unprecedented economic circumstances caused by Covid, and because pandemic restrictions meant HMRC had to reduce its compliance activity. 

HMRC reportedly opened 29% fewer civil compliance cases in 2020-21 than in 2019-20 and closed 26% fewer cases.

Gareth Davies, the comptroller and auditor general of the NAO, has qualified his opinion on the regularity of HMRC’s Accounts. This is reportedly due to material levels of error and fraud in the Covid support schemes, in tax credits and in Corporation Tax research and development reliefs.

HMRC’s current estimate of error and fraud in the Covid-19 support scheme payments is £5.8bn, of which £5.3bn relates to the Coronavirus Job Retention Scheme (CJRS). 

HMRC’s current estimate of the rates of error and fraud in each of the schemes is 8.7% for CJRS, 2.5% for SEISS and 8.5% for the Eat Out to Help Out scheme. 

Gareth Davies, head of the NAO, said: “The Covid-19 pandemic has significantly reduced tax revenues and made it more difficult for HMRC to take enforcement action. 

“Now that the initial impact of the pandemic has eased, normal tax compliance levels should be restored. HMRC also needs to recover money paid out through fraudulent claims made under the Covid-19 support schemes.”

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