Background to the report

The tax system raised £829 billion in 2023-24. The system involves many taxes and duties for His Majesty’s Revenue and Customs (HMRC) to administer, and some taxpayers incur administrative costs in paying taxes.

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HMRC collects the money that pays for the UK’s public services. Its aim is to be a trusted, modern tax and customs department. Its strategic objectives include collecting the right tax and paying the right financial support; making it easy to get tax right and hard to bend or break the rules; and supporting wider government economic aims through a resilient, agile tax administration system.

HMRC takes the lead role in government on policy maintenance and implementation. HM Treasury leads on strategic tax policy and policy development.

Scope of the report

This report seeks to increase the transparency of the costs for all parties of administering taxes, establish how far HMRC understands where within the tax system its administrative costs are high and/or increasing, and how it is acting to improve efficiency and productivity, and reduce costs for taxpayers.

It covers:

  • the administrative cost of the tax system
  • the main cost pressures affecting administration of the tax system
  • opportunities to improve the cost efficiency of administering the tax system

The report covers the UK tax system, focusing on the four taxes with the highest revenues and administrative costs: Income Tax, National Insurance Contributions, VAT and Corporation Tax.

It does not cover costs relating to Borders and Customs functions, such as collection of customs duties, which are not included in HMRC’s cost of tax collection calculation. It also excludes HMRC’s costs of administering benefits such as child benefits and tax credits.

Primary research into the costs of complying with the tax system for taxpayers and their representatives was not conducted in the writing of this report.

Video summary

Jeremy Gostick, Senior Audit Manager, summarises our findings.

Conclusions

The cost to HMRC of running the tax system is increasing. In part this is due to rising complexity in the different tax regimes and taxpayer numbers, but it is also due to the additional cost of introducing and remediating digital systems, and moving to a more highly-skilled workforce.

HMRC does not measure the overall efficiency of its administration of the tax system, but there is evidence from different parts of the system that there is scope for increased efficiency and productivity: enhanced digitalisation has increased revenue but it does not seem to be reducing running costs; customer service performance has declined; and efficiency targets have proved difficult to achieve without compromising services.

Compliance staff productivity remains below pre-pandemic levels. Unless HMRC improves there is a risk that lower levels of yield per caseworker could become the norm.

Higher returns should be achievable given HMRC’s investment in more highly-skilled staff and digital systems, and its assessment that more upstream activity should be more cost‑effective.

There is evidence that the tax system is imposing increased administrative burdens on taxpayers and their intermediaries, despite the availability of digital channels.

The system has become more complex over time, rather than more straightforward and easier to deal with. There are too few examples where system changes have considered the cost to taxpayers, or prioritised sufficiently those that will reduce cost.

There is little doubt that the high returns HMRC generates from its compliance work offer good value for money for the government, but the system is not optimised.

To maximise value for money HMRC must be able to demonstrate efficient use of resources and be more conscious of the full cost of administering each tax and how the end-to-end system is working for each tax.

It has rightly identified that simplification, automation, upfront compliance activity and better working with tax intermediaries will help to reduce its costs.

HMRC’s move towards end-to-end oversight of each tax regime will be important to better enable it to understand the cost-efficiency of administering each tax, including how easy it is for taxpayers to follow the rules, and whether the system is causing unnecessary contact or making it harder and more costly for taxpayers to comply.

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Publication details

Press release

View press release (10 Feb 2025)

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