Tax gap data 'will reduce avoidance'

The government should release its estimates of the tax gap to make tax avoidance and evasion less socially acceptable, the taxman has been told.

Richard Thomas, the information commissioner, said: ‘If the public realised the extent to which tax evasion is a drain on the economy, it could create an atmosphere in which evasion and avoidance would be less socially acceptable.’

The comments came as part of a Freedom of Information challenge to the government to release documents relating to the tax gap – the difference between how much tax should be paid, given the level of economic activity, and actual tax receipts.

HM Revenue & Customs, headed by Treasury minister Jane Kennedy, is due to make its first appearance before the Information Tribunal after it appealed against a demand from the commissioner’s office that it disclose its estimate of the ‘tax gap’ for direct taxes and the methodology used to calculate it.

The taxman has repeatedly refused to publish the figure on the basis that its methodology is still being worked on.

In an extraordinary series of objections to revealing the figures, HMRC argued that, given the uncertainty of the estimates, disclosure would harm the economy, prejudice the collection of tax and compromise the formulation of government policy. The commissioner rejected all these objections.

Thomas said: ‘HMRC states that if it was to publish the wrong figures for large listed companies, the negative impact on share prices quoted on the international stock exchange could be damaging,’ which suggests that a significant tax gap is thought to exist among quoted companies.

The taxman claimed that disclosure could help potential avoiders by ‘emboldening them to exploit areas of vulnerability’. It also said that public knowledge of the tax gap could encourage non-compliance by indicating unfairness in the tax system. All were rejected by the commissioner.

In 2004, Sir Gus O’Donnell, then permanent secretary at the Treasury, told parliament the tax gap was around 8% of the total direct tax take – between £20bn and £30bn – though newspaper reports have put it as high as £150bn.

It is likely to be several months before the Information Tribunal hears HMRC’s appeal. HMRC said: ‘We have given our reasons for withholding the information. We will present our case to the information commissioner in due course.’