More tax lost to fraud than avoidance

Monday 20 October 2014

Evidence from HM Revenue and Customs (HMRC) shows that almost five times more tax revenue is lost through fraud rather than avoidance.

During the financial year 2012/2013, £3.1 billion of tax, which includes contractor tax and sole trader tax, was lost as a result of avoidance. Meanwhile, a further £15.4 billion was missing due to criminal attacks, evasion and the hidden economy.

In total, the tax gap, which is the difference between the amount of tax that needs to be paid and the amount that is collected, was measured at 6.8 per cent. This added up to £34 billion.

This is an increase from the year 2011/2012 where the estimate was measured at 6.6 per cent.

Nevertheless, the long term trend shows that the tax gap is getting smaller. HMRC figures show that it has come down from 8.5 per cent, measured in 2005/2006.

Financial secretary to the Treasury David Gauke said: “Since 2010/11 the percentage tax gap has stayed lower than at any point under the previous government, saving the country £4 billion. Today’s figures show that there’s still more work to do but our continued drive to tackle avoidance means that avoidance is down.

“In 2012/13 HMRC achieved a compliance yield of £20.7 billion, rising to a record breaking £23.9 billion in 2013/14.

“The UK has one of the lowest tax gaps in the world but HMRC will continue to deploy its resources and skills to maintain the downward pressure that has proved so effective in recent years.”

Indeed, experts have echoed calls for more effort to be put into investigating and prosecuting tax evasion. Particularly as, unlike avoidance, evasion is illegal and involves fraud or deliberate concealment.

The Chartered Institute of Taxation (CIOT) said it thinks HMRC could do more to crack down on errors and carelessness by taxpayers and wants to see some measures put in to simplify things.

It says that such measures should be outlined in the Autumn Statement and would help to cut down on mistakes and frustrate those who are avoiding tax.

The tax gap also measures tax owed by companies who have become insolvent, which makes it impossible to collect. It also includes mistakes made at low level in tax returns.

While the percentage of the tax gap went up, the part of it that accounted for avoidance fell from £3.4 billion to £3.1 billion.

According to calculations from the CIOT, £5.4 billion was lost to criminal attacks, £4.1 billion was lost to evasion and £5.9 billion went into the hidden economy.

The government says that changes that have been put into this year's Finance Act are set to bring in more than £7 billion worth of tax that is thought to have been avoided in years gone by.

However, CIOT pointed out that this is much more than the amount that is thought to have been avoided during 2012/2013.

By Victoria McDonnell

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