HMRC puts a lot of effort into calculating the UK tax gap, which is the difference between the amount of tax due (or expected) and the amount of tax actually collected.
While there is some dispute as to the accuracy of these statistics, HMRC’s latest figures show the UK tax gap continuing at around £36bn. But that’s only part of the story. As a percentage of tax yield, the tax gap has dropped by the equivalent of £11bn over 10 years. More significantly perhaps, the newly reorganised HMRC is promising an unprecedented new attack on tax evasion and tax crime.
A lot has been written about the make-up of the tax gap but this graph, published by HMRC, provides a good summary of the overall trend. While the size of the tax gap has not changed markedly over a decade, with total tax receipts having grown to £518bn, the figure to note is the decline in the tax gap from 8.3 per cent to 6.5 per cent:
Hardly an edition of weekly tax brief has passed during that period without some reference to HMRC’s continued attack on tax avoidance. The illustration below shows the effect of those initiatives in reducing tax avoidance to its current position as the smallest contributor to the tax gap:
It’s also interesting to see that the hidden economy, evasion and criminal attacks are believed to cost the UK £16.2bn per year. That’s an astonishing 45 per cent of the tax gap.
Over the years, many people have expressed concern that no government has been as tough as it might have been in clamping down on tax evasion and related behaviours. We therefore welcome the statement from the newly reorganised and newly resourced HMRC that they will be redoubling their efforts in this area by relentlessly pursuing those who engage in tax evasion, aggressive avoidance and organised crime.
Just as real time information has had a major impact in reducing the tax gap in respect of employment earnings, so it’s likely that moving to a fully digital tax system by 2020 will help HMRC tackle tax evasion and tax crime. It’s important, however, that HMRC implements digitalisation as something which is primarily there to meet the needs of honest taxpayers, rather than a weapon against evaders and criminals which may cause problems for citizens who wish to fully comply with their tax obligations with the minimum of fuss and bother.
If you would like to discuss any of the points raised above, please contact George Bull or your usual RSM contact.