HM Revenue & Customs estimates the total UK tax gap, the difference between the tax collected and the amount that should be collected “in theory”, at £34bn. Just £1.7bn relates to avoidance (excluding international tax planning strategies such as profit shifting, which are being addressed slowly but multilaterally), and £6bn relates to interpretation of the law.
In contrast, criminal attacks account for around £5bn and evasion another £5bn, while £3.5bn is attributed to the “hidden economy”.
Read more: My article for AAT Comment, 12 January
A shift in the public debate is needed to ensure that everybody sees tax evasion as unacceptable, a leading UK tax expert said after official figures suggested that avoidance accounted for £1.7bn of a £34bn tax gap.
HM Revenue & Customs estimated that evasion, criminal attacks, and the hidden economy together accounted for £13.8bn, and error and non-payment for £6.4bn. Losses arising from differences in interpretation of the law accounted for £6bn, and failure to take reasonable care accounted for £6.1bn …
My news story for Tax Analysts, October 30 ($)
HMRC: Measuring tax gaps
A perception that the odds are stacked against HM Revenue & Customs and in favour of business impedes the effectiveness of the tax authority’s anti-evasion efforts, according to research that identifies four “distinct profiles of evader” among small and midsize businesses in the UK.
For any intervention strategy to work there is a basic requirement for those evading to “believe that there is a real risk that the evasion will be detected and proven,” said Quadrangle Research Group, a London-based consultancy that conducted the research in April 2016. “The main barrier to effectiveness” is that this is not currently the case, Quadrangle said in a report published on HMRC’s website on September 29.
A new offence listed in the Criminal Finances Act, failure to prevent the facilitation of tax evasion, came into force on September 30. HMRC published guidance on September 29, inviting companies and partnerships to “report on their own behaviour”. Read more:
My news story for Tax Analysts, September 30 (paywall)
HMRC research report: September 2017: Understanding evasion by Small and Mid-Sized Businesses
HMRC guidance September 29: ‘Tell HMRC about a company helping people to evade tax’
HMRC press release September 30: ‘Stop facilitating tax evasion or face criminal prosecution, HMRC tells corporations’
HM Revenue & Customs officers made it “absolutely clear” in a TV documentary that there is no hiding place for people intent on tax evasion, RSM UK partner Mike Down observed.
Catching the Tax Dodgers is “intentionally scary,” Down said, after the programme makers sought to portray what they called “the war between the tax dodgers and the taxman.” The documentary, filmed over a period of four years, was broadcast by Channel 4 on August 13.
HMRC thinks it has “discovered a £36 billion black hole,” the documentary’s narrator said in reference to the department’s estimate of the tax gap for 2014/15. That sum represented 6.5 percent of theoretical tax liabilities, HMRC said in its October 2016 report. The report notes that the tax gap showed an “overall downward trend” from 8.3 percent in 2005/06 before levelling out in recent years. Read more:
My news story for Tax Analysts, August 21 (paywall)
A local authority urged Philip Hammond to do more to tackle tax evasion as it suggested that “rogue” landlords could be costing the Treasury as well as exploiting vulnerable tenants.
Sir Robin Wales, mayor of the east London borough of Newham, said the council’s “private rented licensing scheme” introduced in 2013 had “unearthed that many unscrupulous landlords may be benefiting from undeclared tax.” The Newham council works in close partnership with HMRC to help ensure that landlords meet their financial obligations, Wales wrote.
“We understand that nearly 13,000 Newham landlords have questions to answer and we estimate that across London unpaid tax by landlords could be costing the public as much as £183 million,” Wales said in the council’s emailed statement. HMRC did not recognise the estimate of 13,000, which represents almost half of the borough’s registered landlords, but a spokesman told Tax Analysts that it was working with the borough as part of its UK-wide Let Property Campaign. Read more:
My news story for Tax Analysts, August 21 (paywall)
HM Revenue & Customs and politicians could do more to educate the public about tax and dispel “misleading impressions” about tax avoidance given by media reports, the Chartered Institute of Taxation has told the All Party Parliamentary Group on Responsible Tax.
The idea that there is a large “pot of gold” that could have reduced the need for austerity measures is a myth, the CIOT said, adding that “the concept that HMRC has failed to raid this non-existent pot is a fundamental misreading of reality.”
An APPG consultation was launched in September to consider HMRC’s ability to fight tax avoidance and evasion …
Read more: My news story for Tax Analysts, 26 October (paywall).
Ed Miliband announced at the weekend that, if elected, Labour would open an “independent, root and branch review of the culture and practice of HMRC” in relation to tax evasion and aggressive tax avoidance.
Today the Financial Times reported that there was support for the idea of a review among tax experts who “thought HMRC had lost too many skilled people in the pursuit of efficiency”.
Miliband said: “What we are seeing is the growth of hugely complex and aggressive tax avoidance schemes, often based offshore. The sort of activity that has left the UK a £34bn hole in our nation’s finances.”
HMRC’s estimate of the total UK tax gap is £34bn. The Independent reported – correctly, if we’re using HMRC figures (emphasis added): “The use of offshore aggressive tax avoidance schemes … contributes to a £34bn gap in much-needed public funds.” Continue reading “The tax gap and Labour’s review of HMRC”
The role of greater transparency in improving public understanding of tax issues and enhancing confidence in the system was the subject of an informative and good-natured debate at the House of Commons on 8 July, hosted by Mazars and the Association of Revenue and Customs and chaired by Margaret Hodge MP, chair of the Commons Public Accounts Committee.
My report focuses in turn on some of the key issues relating to tax authorities, tax advisers and taxpayers – three groups forming what Mazars has called the “transparency triangle”.
Read more on the Mazars Tax Transparency blog.
See also recent Published work.