PAYE and self-assessment tax gap grows to £8.5bn

A SIGNIFICANT hike in the value of HMRC’s self-assessment and PAYE tax gaps over the past year has been revealed.

Analysis by Pinsent Masons predicts that investigations into high net worth individuals (HNWs) are now likely to increase, while HMRC has already ramped up its probes into suspected payroll fraud.

The law firm’s crunching of the numbers reveals that the self-asessment tax gap reached £4.6bn in 2013/14, up by 5% in a year from £4.4bn in 2012/13, while the PAYE tax gap rocketed by 15% to £3.9bn in 2013/14 from the previous year.

Pinsent Masons says the tax gap measures the difference between the amount of tax which should, in theory, be collected by HMRC and what is actually collected. Much of the gap will relate to avoidance and evasion.

Fiona Fernie, partner and head of tax investigations at Pinsent Masons, said: “The sharp rise in the self-assessment tax gap means we are likely to see HMRC continue their focus on investigations into individual taxpayers. With a deficit to plug, they are likely to focus on HNWs who may have significant assets held offshore in complex structures – these kind of investigations are likely to yield high returns.”

“The revenue is increasingly making use of retrospective legislation meaning anyone who feels that their tax affairs (past or present) could place them at risk of investigation should now seek advice.”

On the PAYE front, Pinsent Masons says HMRC has upped the number of investigations into the suspected underpayment of employment taxes by 13% over the last year. Some 2,488 were conducted n 2014/15, up from 2,197 in 2013/14.

Known as Employer Compliance Reviews, they are intended to target businesses which are under-paying employment taxes. They represent ‘easy wins’ for HMRC, says the firm, due to the number of genuine errors made by employers when calculating complex employment taxes. Many employers also lack sufficiently joined-up systems to ensure that employee benefits are properly taxed and reported across a large and diverse workforce.

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