Commenting on the news that the UK tax gap – the difference between the amount of tax that should be paid to HMRC against what is actually collected - has decreased to 6.4 per cent, George Bull, senior tax partner at Baker Tilly said:
‘The government is to be congratulated on successfully bringing down the tax gap to its lowest level in nine years. However, while the percentage of the tax gap has been reducing year on year, the value of uncollected tax remains stubbornly high.
‘The £34bn in uncollected tax revealed in this latest report is very different to the £120bn figure quoted by Jeremy Corbyn in his recent leadership manifesto. While there is unlikely to be any meeting of minds on this point, what is clear is that there is no easy solution to closing this gap and no government should rely on closing the gap to meet their fiscal obligations.
‘One interesting point to note is that the overall corporation tax gap has reduced by half from 14 per cent in 2005-6 to seven per cent in 2013-14. The report suggests that larger businesses have a lower tax gap than smaller businesses and they appear to be more compliant. It’s therefore all the more surprising that the government is proposing changes to the way it deals with the tax affairs of large businesses which will impose disproportionate administrative burdens on the compliant majority. According to the report, £16.5bn of the total tax gap is attributed to SMEs so small businesses who don’t play by the rules can expect to be targeted by HMRC in the future.
‘Others in the firing line could include people who are running businesses under the radar. The government has recently consulted on extending its data gathering powers to tackle the hidden economy, which according to this report costs the exchequer an estimated £6.2bn in uncollected tax.
‘While a report such as this will always be flawed, because of the difficulty in trying to measure unknowns, HMRC is to be commended for trying to work out the percentage of the tax gap which takes account of the growth and contraction of the economy. However, it is curious that the tax gap continued to decline during the financial crisis. Clearly individuals and businesses behaved in a much more honest way during this period than might have been expected.’