According to HMRC’s recently published report Measuring tax gaps 2020, the tax gap estimate for 2018/19 is 4.7% – its lowest recorded rate.
The figures show a long-term downward trend in the tax gap, falling from 7.5% in 2005/06 to 4.7% in 2018/19. The tax gap is the difference between tax that should be paid and what is actually paid. HMRC collected £628bn in tax revenue in 2018/19.
HMRC’s chief executive Jim Harra said: ‘More than 95% of the tax due was paid in 2018/19. HMRC’s aim is for everyone to pay the tax that is due, no matter who they are.’
This is the first year that a standalone tax gap for wealthy taxpayers has been included in the report. The total wealthy tax gap stands at £1.7bn and represents a very high collection rate of all tax due within this group. The wealthy tax gap is the smallest proportion of the total gap by customer group, making up 6% of the total tax gap. However, Steven Porter, partner at Pinsent Masons, noted that the figure for wealthy individuals was up from £1.6bn the year before and £1.3bn in the year to 31 March 2017. ‘The jump in the high net-worth tax gap is likely to see HMRC react by getting more aggressive in how it investigates wealthy individuals’ tax affairs,’ he said.
Further findings include:
the tax gap for income tax, NICs and CGT is 3.4% in 2018/19 at £12.1bn – this represents the biggest share of the total tax gap by type of tax;
there has been a long-term reduction for the VAT gap from 14.0% in 2005/06 to 7.0% in 2018/19;
the excise duty gap has reduced from 8.4% in 2005/06 to 5.0% in 2018/19;
the corporation tax gap has reduced from 11.3% in 2005/06 to 7.0% in 2018/19;
the avoidance tax gap has reduced from £3.7bn in 2005/06 to £1.7bn in 2018/19.
Tax lost due to ‘non-payment’, largely taxes written off as a result of insolvency, stands at £4.1bn, up from £3.1bn in 2015/16. It is expected this figure will rise for the current year due to the current recession caused by Covid-19.
Tax was also lost due to taxpayers’ failure to take reasonable care (with the 2018/19 figure at £5.5bn); taxpayer error (£3.1bn); evasion (£4.6bn); criminal attacks (£4.5bn); hidden economy (£2.6bn); avoidance (£1.7bn); and ‘legal interpretation’ (£4.9bn).
The CIOT welcomed the figures, but warned that the complexity of the tax system means taxpayer error is likely to remain high going forward.
John Barnett, chair of CIOT’s Technical Policy and Oversight Committee, said: ‘These are impressive figures showing a fall of a third in the tax gap over five years, to which falls in all parts of the tax gap have contributed.’ But he added: ‘It is noteworthy that nearly twice as much is lost to errors as to avoidance.’
Barnett also queried the inclusion of legal interpretation within the tax gap figure. ‘Legal interpretation is about tax which is not legally due but HMRC misunderstood the law,’ he said. ‘HMRC defines this as where the customer’s and HMRC’s interpretations of the law and how it applies to the facts in a particular case result in different tax outcomes. Examples include the correct categorisation of an asset for allowances, the allocation of profits within a group of companies, or VAT liability of a particular supply. We query why it is part of the tax gap at all. If even HMRC do not understand the law to the tune of £4.9bn what hope is there for the ordinary taxpayer faced with the same complexity in the tax system?’
According to HMRC’s recently published report Measuring tax gaps 2020, the tax gap estimate for 2018/19 is 4.7% – its lowest recorded rate.
The figures show a long-term downward trend in the tax gap, falling from 7.5% in 2005/06 to 4.7% in 2018/19. The tax gap is the difference between tax that should be paid and what is actually paid. HMRC collected £628bn in tax revenue in 2018/19.
HMRC’s chief executive Jim Harra said: ‘More than 95% of the tax due was paid in 2018/19. HMRC’s aim is for everyone to pay the tax that is due, no matter who they are.’
This is the first year that a standalone tax gap for wealthy taxpayers has been included in the report. The total wealthy tax gap stands at £1.7bn and represents a very high collection rate of all tax due within this group. The wealthy tax gap is the smallest proportion of the total gap by customer group, making up 6% of the total tax gap. However, Steven Porter, partner at Pinsent Masons, noted that the figure for wealthy individuals was up from £1.6bn the year before and £1.3bn in the year to 31 March 2017. ‘The jump in the high net-worth tax gap is likely to see HMRC react by getting more aggressive in how it investigates wealthy individuals’ tax affairs,’ he said.
Further findings include:
the tax gap for income tax, NICs and CGT is 3.4% in 2018/19 at £12.1bn – this represents the biggest share of the total tax gap by type of tax;
there has been a long-term reduction for the VAT gap from 14.0% in 2005/06 to 7.0% in 2018/19;
the excise duty gap has reduced from 8.4% in 2005/06 to 5.0% in 2018/19;
the corporation tax gap has reduced from 11.3% in 2005/06 to 7.0% in 2018/19;
the avoidance tax gap has reduced from £3.7bn in 2005/06 to £1.7bn in 2018/19.
Tax lost due to ‘non-payment’, largely taxes written off as a result of insolvency, stands at £4.1bn, up from £3.1bn in 2015/16. It is expected this figure will rise for the current year due to the current recession caused by Covid-19.
Tax was also lost due to taxpayers’ failure to take reasonable care (with the 2018/19 figure at £5.5bn); taxpayer error (£3.1bn); evasion (£4.6bn); criminal attacks (£4.5bn); hidden economy (£2.6bn); avoidance (£1.7bn); and ‘legal interpretation’ (£4.9bn).
The CIOT welcomed the figures, but warned that the complexity of the tax system means taxpayer error is likely to remain high going forward.
John Barnett, chair of CIOT’s Technical Policy and Oversight Committee, said: ‘These are impressive figures showing a fall of a third in the tax gap over five years, to which falls in all parts of the tax gap have contributed.’ But he added: ‘It is noteworthy that nearly twice as much is lost to errors as to avoidance.’
Barnett also queried the inclusion of legal interpretation within the tax gap figure. ‘Legal interpretation is about tax which is not legally due but HMRC misunderstood the law,’ he said. ‘HMRC defines this as where the customer’s and HMRC’s interpretations of the law and how it applies to the facts in a particular case result in different tax outcomes. Examples include the correct categorisation of an asset for allowances, the allocation of profits within a group of companies, or VAT liability of a particular supply. We query why it is part of the tax gap at all. If even HMRC do not understand the law to the tune of £4.9bn what hope is there for the ordinary taxpayer faced with the same complexity in the tax system?’
