Don’t throw good tax money after bad

LAST WEEK HMRC released data on the Tax Gap, the difference between the tax that should have been collected by HMRC and what is actually collected, a difference of £35bn in the year 2009-10 and an astonishing £195bn since 2004.

Conveniently, this was announced alongside the Liberal Democrat annual conference where an announcement was made that the government will be recruiting 2,250 extra inspectors to crack down on tax avoidance in order to reduce the tax gap, and track down wealthy individuals who are finding ways of avoiding tax.

I believe that this is extremely short sighted of the government to give this level of resource to tackle tax avoidance, purely because it will earn them political points by looking like they are cracking down the unpopular super rich who avoid tax.

If you actually study the figures hidden away in the report you will see that of the £35bn lost in 2009-10, only £2.5bn (7.2%) was due to tax avoidance and in fact £11.7bn (33.4%) was lost due to incorrect tax returns and £11.4bn (32.5%) lost through unpaid VAT.

I cannot be alone in thinking that it would be more beneficial for the government to be spending their scarce pennies on recovering lost VAT and creating an education programme to make it easier for individuals and businesses to fill in their tax forms correctly when two thirds (65.9%) of the lost revenue comes from these areas.

Investing in systems that work properly to avoid this loss would be a much more effective use of resource, and should help to reduce this tax gap quicker in the long run.

Fronting the story with the “good news” that in fact the Revenue have managed to reduce the gap by £4bn in the past year and claiming that they are fighting the rich tax avoiders is nothing more than political propaganda – it’s no wonder the country’s broke if we cannot find the simplest solutions to problems.

The figure of £35bn is an annual loss to the Exchequer, which is any other business, would result in catastrophic failure on a massive scale. I have to ask who are the people in charge who are prepared to annually accept such a large deficit, how long have they presided over this situation and are they considering their position given their obvious failure to perform?

A rogue trader at UBS caught the headlines recently due to his underhand activities causing a loss of £1.3bn – he lost his job and is facing jail. The situation here is different as his activities were fraudulent however; the annual tax loss by the Revenue seems even more shocking in comparison.

It is completely unacceptable in any business to lose this amount of money due to inefficiency, so how can we let the government get away with it but putting a positive “spin” on the situation? I find this extremely worrying.

Mike Fleming, CTA, TEP, partner at Straughans Chartered Accountants and Tax Advisers

Image credit: Shutterstock

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