An increasingly complex tax system, more people paying tax and HMR investing in staff and IT contributed to HMRC’s costs of collecting tax rising by 15% (£563 million) in real terms between 2019-20 and 2023-24, according to a new National Audit Office (NAO) report.
During this same period, government’s tax yield rose by 16% (£113 billion) in real terms.
The increase in administrative costs can be attributed to several factors. First, the tax system is becoming increasingly complex, and HMRC has estimated that the combined effect of changes announced between 2022 and 2024 will increase its costs cumulatively by around £875 million over the next few years.None of these changes are expected to reduce costs, although it is anticipated that some of them will increase revenue in the longer term.
Second, the number of people liable to pay Income Tax has increased from 31.7 million in 2020-21 to 36.2 million in 2023-24, due to income tax thresholds remaining at the same level since April 2022, and population and employment growth.
Third, the cost of compliance work – which helps to reduce fraud and error in the tax system – has increased due to higher spending on digital tools and staff.
