Tax gap: HMRC should speculate to accumulate

WHAT MORE can the taxman do to close the tax gap? And where should it focus its energies?

Early reaction to HMRC announcing the tax gap has closed to £35bn from £39bn attempts to answer both those questions.

The taxman’s targeted approach to tackling the gap – through amnesties, entering into bi-lateral agreements and cross-checking data – should be further encouraged, believes PKF tax partner John Cassidy.

With £917m pumped into recouping £7bn previously lost through tax avoidance should make it clear to the government that big investment can reap big rewards.

“Looking at it in these terms, there is a strong argument for pumping even more funding into HMRC as the resulting benefits – which will accrue each year – far outweigh the one-off costs,” said Cassidy.

“Given the estimated size of the tax gap, we are a very long way from seeing diminishing returns on such activity.”

Another key figure published yesterday showed that tax lost through criminal activity represented a staggering £4bn from evasion and £6bn from criminal attacks. The hidden economy accounts for an estimated £4bn.

“According to the government, tax evasion and other illegal activity are costing the Exchequer three times as much as tax avoidance,” said Gary Ashford, representing the CIoT’s compliance reform forum.

“The CIoT has long argued that HMRC needs to put more effort into investigating and prosecuting those who seek to evade tax. We support recent announcements of additional resources in this direction.”

What cannot be ignored are advisors’ concerns about the number of mistakes that come out of HMRC itself. The taxman should also look within, as well as hit tax evaders.

“If HMRC want to improve compliance and reduce error levels they also need to make it easier for people to contact them and get advice that is prompt, accurate and understandable,” Ashford added.

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