HMRC's Compliance Yield: How HMRC reports Future Revenue Benefit – an update for 2020 to 2021
Updated 24 November 2021
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Introduction
HM Revenue and Customs (HMRC) annually carries out a significant number of compliance interventions, legislative changes and educational activity which leads to the reporting of an annual amount of compliance yield arising from this work. Compliance yield is recorded under six classifications, these are:
- Cash Expected
- Revenue Loss Prevented
- Future Revenue Benefit
- Upstream Product and Process
- Upstream Operational
- Accelerated Payments
Whilst these classifications are explained further in HMRC’s Annual Report and Accounts 2020 to 2021, this technical paper focuses specifically on Future Revenue Benefit (FRB). FRB quantifies the effects of our compliance interventions on customers’ future behaviour.
Since 2011, and in line with the Organisation for Economic Co-operation and Development (OECD) good practice, we have included FRB across all HMRC’s compliance work as this helps us reflect and understand the full impact of our compliance work and informs how we resource to areas of highest risk.
In their 2014 to 2015 Standard Report, the National Audit Office (NAO) said that there were inconsistencies between how we recorded FRB and Product and Process yield. FRB was reported in the year the compliance intervention concluded, whereas Product and Process yield is reported when the product or process change impacts Exchequer receipts.
A technical paper accompanied our 2015 to 2016 annual report and accounts explaining how HMRC planned to change how it reports FRB and the impact of the change compared to the original method. This technical paper provides an update on that reporting approach for FRB.
Future Revenue Benefit
Many of our compliance interventions have an effect not just on the particular period that the return relates to, but future years too. For example, if we make changes to the rate at which a business has claimed capital allowances or tax relief for interest payments, then the change will affect both the liabilities under investigation (Cash Expected) and future years’ liabilities as well (Future Revenue Benefit).
FRB can only be recorded by caseworkers where there is sufficient evidence – there is detailed guidance in place which sets out the conditions that must be met to justify recording FRB and there are limits to the number of future years for which FRB can apply.
Based on our guidance, FRB can be claimed for 3 or 5 years where we have Customer Compliance Managers in place and FRB is appropriate to be claimed. For other cases it can be for up to 3 years.
Total amounts of FRB generated between 2011 to 2012 and 2020 to 2021 are set out below in Figure 1.
Changes to our FRB reporting methodology
From 2011 to 2012 to 2015- to 206 we reported FRB in the year in which we completed each compliance intervention. At the beginning of the Spending Review 2015 period (2016 to 2017 to 2019 to 2020), and responding to the NAO’s recommendation, we started recording FRB for the future year(s) in which it has an impact on Exchequer receipts rather than the year in which we completed the compliance intervention.
The rows in Figure 1 show the total FRB generated by the previous reporting method and the columns show how FRB impacts on the Exchequer in each year under the current reporting methodology.
Figure 1: estimated year of impact (YI) of FRB generated between 2011 to 2012 and 2020 to 2021 (£m)
| Year of activity | YI: 2011-12 (£m) | YI: 2012-13 (£m) | YI: 2013-14 (£m) | YI: 2014-15 (£m) | YI: 2015-16 (£) | YI: 2016-17 (£) | YI: 2017-18 (£) | YI: 2018-19 (£) | YI: 2019-20 (£) | YI: 2020-21 (£) | YI: 2021-22 (£) | YI: 2022-23 (£) | YI: 2023-24 (£) | YI: 2024-25 (£) | YI: 2025-26 (£) | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 to 2012 | 197 | 1,458 | 1,837 | 887 | 229 | 69 | 23 | 4,700 | ||||||||
| 2012 to 2013 | 294 | 1,459 | 1,647 | 765 | 197 | 59 | 20 | 4,441 | ||||||||
| 2013 to 2014 | 328 | 1,791 | 2,052 | 967 | 265 | 79 | 28 | 5,508 | ||||||||
| 2014 to 2015 | 348 | 2,273 | 2,535 | 1,192 | 269 | 108 | 20 | 6,746 | ||||||||
| 2015 to 2016 | 400 | 2,137 | 2,349 | 1,061 | 192 | 78 | 13 | 6,231 | ||||||||
| 2016 to 2017 | 354 | 1,733 | 1,985 | 970 | 241 | 88 | 24 | 5,395 | ||||||||
| 2017 to 2018 | 458 | 1,857 | 2,076 | 1,058 | 417 | 127 | 40 | 6,033 | ||||||||
| 2018 to 2019 | 2,362 | 2,819 | 1,586 | 1,188 | 983 | 379 | 0 | 9,319 | ||||||||
| 2019 to 2020 | 2,804 | 2,036 | 1,269 | 724 | 637 | 126 | 7,595 | |||||||||
| 2020 to 2021 | 885 | 1,243 | 621 | 421 | 356 | 158 | 3,526 | |||||||||
| Total | 197 | 1,752 | 3,624 | 4,671 | 5,719 | 6,259 | 6,080 | 7,632 | 8,998 | 5,905 | 4,219 | 2,478 | 1,477 | 482 | 158 | 59,494 |
Note: all FRB with Year of Activity before 2020 to 2021 and Year of Impact 2020 to 2021 has been reduced by 9% to take account of the economic impact of COVID-19.
Future Revenue Benefit in 2020 to 2021: impact of COVID-19
The unprecedented economic shock caused by COVID-19 meant that there was a risk that FRB we assessed in previous years to impact in 2020 to 2021 was overestimated, due to the impact of COVID on tax receipts which we had not known about when the FRB was assessed. To take account of this, we made an adjustment to the FRB brought forward from previous years to 2020 to 2021, in line with the reduction in tax receipts compared to the OBR’s pre-COVID-19 forecasts. The 9% adjustment reduced FRB assessed in previous years impacting in 2020 to 2021 from £5,517 million to £5,020 million.