• New figures published by HMRC reveal the ‘tax gap’ – the difference between the amount of tax that should be paid and the amount actually paid – was £31 billion in 2018/19 (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/899009/Measuring_tax_gaps_2020_edition.pdf)
• UK tax gap represents 4.7% of total tax liabilities, the lowest figure since records began
• Mistakes, tax evasion and ‘criminal attacks’ among the reasons the Exchequer was short-changed
• £300 billion COVID-19 bill facing the Treasury in 2020/21 likely to further sharpen focus on tax collection
Tom Selby, senior analyst at AJ Bell, comments: “Although HMRC has been successful in reducing the ‘tax gap’ to record lows, a financial black hole of £31 billion remains eye-watering by any standards.
“To put that in context, the missing cash roughly equates to the entire budget of the Department for Transport and BEIS in 2018/19…combined*.
“In reality of course there will always be a discrepancy between the amount of tax the Revenue expects to receive and the amount it rakes in each year.
“Businesses that become insolvent and so by definition can’t pay the tax they owe, for example, will represent part of the gap, while human error accounts for £3.1 billion of missing tax receipts. There will also be people in the so-called ‘hidden economy’ who simply do not declare their income to HMRC.
“With COVID-19 placing a huge strain on public finances, HMRC will be under even greater pressure to close the UK tax gap in 2020/21 and beyond.
“These efforts will likely focus on people breaking or bending the rules to artificially reduce the amount of tax they pay. However, simplification of the rules individuals are required to navigate and efforts to further modernise the system of reporting could also go a long way to reducing tax errors.”
Source: HMRC
*Source: https://www.instituteforgovernment.org.uk/explainers/departmental-budgets
