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Tax gap continues slow fall

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The tax gap, the difference between the amount of tax due to HMRC and the amount collected, is estimated to have been £34bn in 2015/16, representing some 6% of the total tax and duties due. This is a slight fall from the adjusted total for 2014/15 of £33bn (6.1% of the total dues). The 2015/16 estimates include:

  • VAT gap of £12.6bn (9.8%), from £12.4bn in 2014/15;
  • corporation tax gap of £3.3bn (6.4%), down from £3.7bn in 2014/15;
  • PAYE tax gap of £3bn (1.2%), down from £4.1bn in 2014/15; and
  • alcohol and tobacco tax gap of £1.3bn (7.5%) and £2.4bn (17%) respectively.

Around half of the tax gap (£15.5bn) relates to SMEs, while £9.7bn relates to large businesses. Individuals account for £3.5bn.

Illegal activity included organised criminal attacks (£5.1bn), evasion (£5.2bn) and the hidden economy (£3.5bn). The hidden economy figure for the previous year has been revised down, as more accurate data becomes available, and has remained relatively stable since 2010.

Tax avoidance accounted for £1.7bn, while tax lost through errors and failure to take reasonable care amounted to £9.4bn. Tax lost through differences in ‘legal interpretation’ between taxpayer and HMRC over the correct treatment amounted to £6bn. See here.

Commenting on the figures, John Cullinane, CIOT tax policy director, noted that evasion and other illegal activity continue to cost the exchequer much more than tax avoidance. Nearly twice as much tax is lost in errors alone (£3.3bn) as in tax avoidance. ‘If the tax authority needs more resources to directly help taxpayers to pay the correct sums, then it should get it,’ Cullinane added.

The CIOT notes that the biggest increase in the tax gap in the past year is in the amount of tax lost due to ‘legal interpretation’. This ‘may reflect increased zealousness on HMRC’s part in challenging taxpayers’ claims,’ Cullinane suggested.

The total figure of tax and NICs collected by HMRC during 2015/16 was £533.7bn. The latest figures show a total of £569.3bn collected in 2016/17.

Issue: 1375
Categories: News