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Tax gap in 2016/17

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HMRC’s estimate of the tax gap in 2016/17 is £33bn, representing 5.7% of the total tax and duties due. This is the same as the adjusted percentage for 2015/16.

Small businesses made up the largest share of the tax gap at £13.7bn (41%), followed by large businesses with £7bn (21%), mid-sized businesses with £3.9bn (12%) and individuals with £3.4bn (10%). Criminal activity accounted for £5.4bn of the total (16%) and the hidden economy £3.2bn (10%), while avoidance was responsible for £1.7bn (5%).

The overall self-assessment tax gap was £7.9bn, of which £5.1bn was attributable to self-employed individuals. The VAT gap was £11.7bn (8.9%), slightly up on 2015/16, and corporation tax accounted for £3.5bn (7.4%), similar to the 2015/16 level.

Mistakes accounted for £9.2bn of the total. The largest behavioural component of the overall tax gap was ‘failure to take reasonable care’, amounting to £5.9bn (18%), with ‘error’ making up £3.2bn (10%). These percentages are the same as the previous year, although the cash value has increased in both cases.

Commenting on the level of mistakes, Lucy Brennan, partner at Saffery Champness, said: ‘A large part of the tax gap problem remains a worrying lack of understanding amongst taxpayers about their obligations, and the tax system. This year, failure to take reasonable care, together with plain and simple error, has taken almost £10bn from the public purse.’

Catherine Robins, partner at Pinsent Masons, observed that tax avoidance now accounts for a much smaller proportion of the tax gap than most people believed. HMRC is instead putting ‘significant resource into areas like employer tax compliance, where it is very easy for businesses to make mistakes’, she said.  The value of the tax gap attributed to ‘legal interpretation’, where taxpayers’ interpretation of how much tax they owe differs from that of HMRC, was £5.3bn (16%) in 2016/17.


Issue: 1404
Categories: News