Muras Matters: Measuring the UK Tax Gap

Measuring the UK Tax Gap

HM Revenue and Customs (“HMRC”) has just published the latest statistics relating to the UK ‘Tax Gap’. The tax gap is the theoretical difference between the amount of tax HMRC expects to collect through the tax system, and what it actually does collect.

The report shows that the level of uncollected tax in the year 2015/16 (the most recent figures available) has increased since the previous year by around £1bn, to £34bn, which is 6% of total tax liabilities.

The tax gap reflects tax lost for a variety of reasons and can be broadly broken down as follows:

  • Error and failure to take reasonable care £9.4bn
  • Criminal attacks and evasion £10.3bn
  • Hidden economy £3.5bn
  • Avoidance £1.7bn
  • Legal interpretation £6.0bn
  • Non payment £3.1bn

The greatest loss is in respect of Income tax, NIC and capital gains tax at £13.7bn followed by VAT at £12.6bn and corporation tax of £3.3bn.

Despite the increase in the recently published figures the general trend since 2005 shows a decrease, with the 6% tax gap for 2015/16 matching the lowest level it has been since 2005/06. This reflects the significant investment made by the government in new compliance initiatives over recent years.

Interestingly the biggest increase on the previous year is attributable to legal interpretation. Such instances occur where the taxpayer’s interpretation of the law and how it applies to a particular matter differs to HMRC’s interpretation. This may well in part highlight the increased complexity of UK tax law.

We report regularly on HMRC initiatives to encourage taxpayers to come forward voluntarily to bring their tax affairs up to date. If you require more information about this please contact our Tax Director, Jenny Marks.