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Aggregate tax gap estimate is misleading, say MPs

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The Treasury Committee has questioned whether estimating the ‘tax gap’ serves any useful purpose in HMRC’s work and pointed out that encouraging taxpayers to pay the right tax voluntarily is ‘by far the most efficient way’ to close the gap. But the cross-party group of MPs endorsed HMRC's targeted approach to compliance.

‘We are not convinced that the process of calculating, publishing and publicising an aggregate figure for the tax gap is a sensible use of HMRC's limited resources,’ the Committee said in its report, Closing the Tax Gap: HMRC's record at ensuring tax compliance, released today. ‘The aggregate tax gap figure is misleading and risks focusing HMRC on the wrong task as it only provides an order of magnitude.’

An HMRC spokesman told Tax Journal: ‘We have always made clear that measuring the tax gap cannot be an exact science and we welcome the committee's recognition of the quality of our compliance work.’

The committee recognised that it was useful for HMRC's staff to have some idea of the difference between what HMRC should be collecting and what is collected, particularly in relation to criminal activity.

‘However, in other areas it would be more useful for it to identify ambiguities in tax law rather than employ resources in calculating how much tax would be collected if everyone shared its interpretation of the law.’

HMRC should consider establishing a ‘general disclosure facility’ to run alongside targeted campaigns, the committee said.