HMRC Credited With Bringing Down UK Tax Gap
The difference between the tax due and that collected by the UK tax authority, HM Revenue and Customs (HMRC) – known as the “tax gap” – fell to a record low of six percent in the fiscal year 2015-16, according to official statistics released on October 26, 2017.
HMRC pointed out that it has introduced 75 measures over the last seven years to reduce tax avoidance, evasion, and non-compliance, which have focused on demanding more tax from multinationals; increasing powers and penalties to challenge fiscal crime; and investing more in tax enforcement activities.
HMRC said that improvements to tax collection rates in the last year had resulted in generating GBP12bn (USD15.8bn) a year more in revenue, having closed the tax gap from the 2015-16 level of 7.9 percent. It added that, since 2010, it has secured almost GBP160bn in additional tax revenue as a result of actions to tackle tax evasion, tax avoidance, and non-compliance, including GBP2.8bn specifically from challenging offshore tax evasion.
It boasted that the “UK is a world leader on tax compliance, with one of the lowest tax gaps in the world, and sets an international example on tax transparency, being the only country to measure and publish tax gaps every year covering both direct and indirect taxes.”
Responding to the figures, the Chartered Institute of Taxation (CIOT) said that while the decline in the tax gap was welcome, it is concerned over continuing high levels of unintentional non-compliance.
Levels of error and mistakes through not taking reasonable care cost the Exchequer an estimated GBP9.4bn in total in 2015-16 – more than one pound in every sixty of the total tax HMRC believes should be due.
The Institute also highlighted that just five percent of the tax gap is down to tax avoidance, with fraudsters most to blame for the missing billions. Of the GBP34bn missing, just GBP1.7bn is thought to be down to tax avoidance, with GBP13.8bn attributable to illegal activity (GBP3.5bn lost to the “hidden economy,” GBP5.2bn to evasion, and GBP5.1 bn to criminal attacks), it said.
John Cullinane, CIOT Tax Policy Director, commented: “These figures suggest that tax evasion and other illegal activity are costing the Exchequer more than eight times as much as tax avoidance. The CIOT has long argued that HMRC needs to put more effort into investigating and prosecuting those who seek to evade tax. The Government are right to have put extra resources in this direction, as well as tackling artificial and abusive attempts to avoid tax.”
“Taxpayers should feel reassured that HMRC is making good progress on tackling and managing the tax gap. We welcome HMRC’s continued commitment to providing impartial statistics that should inform the unprecedented debate about taxation and we will continue to push for the more simplified and workable tax system that personal and corporate taxpayers tell us they want.”
“The relative achievements on the tax gap counters some unfair criticism of HMRC which risks being undermined by being judged against extremely challenging standards such as solving the political problems thrown up by how much tax some multinational corporations pay and where they do so. This is a matter of international tax law and diplomacy for which politicians and their international negotiators are responsible and has little to do with how well or badly HMRC enforces existing rules.”
“The many changes to the tax system made and planned in the past 12 months should push HMRC into focussing on customer service as a more direct way to help large numbers of fairly ordinary taxpayers who find themselves confronted by an ever more complex tax law and increasing compliance obligations. After all, nearly twice as much is lost in errors as in tax avoidance. If the tax authority needs more resources to directly help taxpayers to pay the correct sums, then they should get it.”