UK tax gap falls to 6.4%

The UK’s overall tax gap for the 2013-2014 financial year was 6.4%, HMRC revealed today, continuing a downward trend over the last few years

The difference between the amount of tax collected and that which is owed, the tax gap has fallen from 8.4% in the 2005-2006 financial year to 6.6% in the 2012-2013 financial year.

This amounts to the collection of an extra £57bn in the last eight years. The current tax gap is currently worth £34bn.

The most reduced tax gap is in corporation tax. In the 2005-2006 financial year, the corporation tax gap was 14%; it has now fallen to 7%.

David Gauke, financial secretary to the Treasury, said, “The UK has one of the lowest tax gaps in the world, and this government is determined to continue fighting evasion and avoidance wherever it occurs.

“If the tax gap percentage had stayed at its 2009-10 value of 7.3%, £14.5bn less tax would have been collected.”

Gauke acknowledged public anger over unpaid tax, but added that the government “can reassure the public that the proportion going unpaid is low and this government is dedicated to bringing it down further”.

However Frank Haskew, head of ICAEW’s Tax Faculty, described the reduction to the tax gap as modest, and urged the government to up the Revenue’s budget to help it reduce the gap further.

“Clearly HMRC needs to keep spending in this area if it is to continue reducing the tax gap year on year,” Haskew said.

“We would like to see assurances from the chancellor in next month’s Autumn Statement that HMRC will be protected from further budget cuts and instead should be given more resources to improve service standards and reduce the tax gap.

“Given the substantial reduction in staff and budget over the years, HMRC deserves credit for making this progress and we believe that with additional resources the tax gap could be made even smaller.”

Baker Tilly’s George Bull said that the missing £34bn was a far cry from the £120bn suggested by Labour Party leader Jeremy Corbyn, adding that no government should rely on closing that gap to meet fiscal obligations.

Bull added, “The report suggests that larger businesses have a lower tax gap than smaller businesses and they appear to be more compliant.

“It’s therefore all the more surprising that the government is proposing changes to the way it deals with the tax affairs of large businesses which will impose disproportionate administrative burdens on the compliant majority.

“According to the report, £16.5bn of the total tax gap is attributed to SMEs so small businesses that don’t play by the rules can expect to be targeted by HMRC in the future.”

In the last spending review period, the government invested almost £1bn to transform HMRC’s approach to tax compliance. This, HMRC said, contributed to the delivery of more than £100bn in additional compliance up to the end of the 2015-2016 spending review period.

Edward Troup, HMRC’s second permanent secretary and tax assurance commissioner, said, “We are committed to reducing the tax gap further and bringing in more money to fund vital public services.

“We are continuously looking for new ways to improve compliance and tackle non-compliance, whether by helping individuals do the right thing or by cracking down on offshore tax evasion by the wealthy or tax avoidance by multinationals.”