Tax gap climbs to 6.8%

THE TAX GAP rose to 6.8% of total tax due in 2012/13, falling to £34bn in value, up on the £33bn and 6.6% shortfall last year.

The gap has been relatively consistent in value since 2004/05 – the furthest back estimates go – with the lowest figure coming in 2009/10 at £31bn and highest being £37bn in 2006/07, while two of the eight years posted a £33bn shortfall. The gap is regularly revised to take account of improved methods and the latest available information, and the figures published today include revisions going back to 2005/06.

The tax gap estimate for 2011/12 has been revised from 7% – around £35bn – to 6.6% and approximately £33bn.

While the value of the tax gap has not fluctuated greatly, the taxman’s estimates of the gap as a percentage of liabilities has dropped from 8.2% of tax owed in 2004/5 to 6.8% today.

The slight rise in the tax gap can be primarily attributed to due to increases in the VAT and tobacco tax gaps, HMRC said.

Since the tax gap was first monitored, an additional £43bn in cumulative tax has been collected, and Baker Tilly senior tax partner George Bull has warned the latest figures will ramp up the pressure on the taxman to maximise its recoveries.

He said: “Disappointing income tax receipts so far this year, and the rise in the tax gap for the first time since 2005 will pile further pressure on HMRC to maximise recoveries from taxpayers.

“We’ve recently seen that the Italian economy has narrowly avoided recession due to its booming organised crime sector, and interestingly, HMRC suggests that in the UK £5.9bn – 17% of the total tax gap – is lost due to the hidden economy. But who is to know whether this is correct, as the reality is that this can only ever be a finger-in-the-wind estimate.”

Saffery Champness private wealth partner James Hender added the figures are “highly subjective” and holds that tax lost to ‘legal interpretation’ or ‘avoidance’ should not be counted at all as the taxpayer could be entirely on the right side of the rules.

He said: “The truth is that it is difficult to quantify or even define what the tax gap is. One person’s tax avoidance is another person’s good tax planning. You have to feel sorry for HMRC who have estimated the tax gap as best as they can, and are guaranteed to be chewed up by the Public Accounts Committee as a result.”

Finance secretary to the Treasury David Gauke said: “Since 2010/11 the percentage tax gap has stayed lower than at any point under the previous government, saving the country £4bn. Today’s figures show that there’s still more work to do but our continued drive to tackle avoidance means that avoidance is down.

“In 2012/13 HMRC achieved a compliance yield of £20.7bn, rising to a record breaking £23.9bn in 2013/14.

“The UK has one of the lowest tax gaps in the world but HMRC will continue to deploy its resources and skills to maintain the downward pressure that has proved so effective in recent years.”

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