£33bn tax gap shows avoidance activity in decline

Recent figures from HMRC have revealed that the UK ‘tax gap’ equated to 5.7% of total tax liabilities for the 2016/17 tax year.

The term refers to the difference between the amount of tax that is theoretically payable to HMRC, and the amount that is actually received.

According to HMRC’s latest ‘Measuring the Tax Gap’ report, the gap has fallen from 7.3% in 2005/6 to an estimated 5.7% in 2016/17, equating to £33bn in revenue.

The report revealed that income tax, national insurance and capital gains tax made up the largest proportion of the tax gap.

Taxpayer errors and failure to take reasonable care were responsible for £9.2bn of unpaid taxes.

With only 5% of the tax HMRC thinks is being underpaid is due to tax avoidance, HMRC is increasingly shifting the focus of its enquiries away from tax avoidance schemes towards more technical disputes over businesses’ interpretation of the law.

Avoidance accounts for £1.7bn of loss, compared to £5.9bn due to failure to take reasonable care, £5.4bn due to criminal attacks, and £5.3bn because of legal interpretations.

There are also predictions that HMRC is likely to come after SMEs and individuals to boost their tax take, as HMRC’s figures show that small businesses and individuals are thought to have underpaid a combined £17.1bn of tax in 2016-17, half of the total.

HMRC Measuring the Tax Gap is  here.

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