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Mind the gap
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Closing the UK tax gap

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With an economic black hole to fill, Philip Fisher wonders why the Chancellor isn't getting more aggressive with the tax gap.

15th Sep 2021
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With a Budget coming along in October and public finances at rock bottom, the Chancellor of the Exchequer should be looking at every possible opportunity to boost the accounts of UK plc.

Having blithely watched his Prime Minister break three manifesto promises last week, it is always possible that Rishi Sunak will choose to do likewise and increase taxes but that goes against his ingrained instincts.

Despite protestations to the contrary, we are more likely to see further austerity measures used to shore up the black hole rather than headline-catching hikes in tax rates.

Sir Keir Starmer would almost certainly advocate a different approach, involving an assortment of plans attached to tax the rich, ie our clients and maybe even ourselves.

These could include increasing revenues from capital gains tax, inheritance tax and maybe even the introduction of a wealth tax.

However, there is a very strong argument for taking a different approach either on its own or allied to some of those already contemplated. This would be to reduce the tax gap.

Some readers may have seen recent press coverage of report from the US Treasury asserting that the wealthiest 1% of Americans are responsible for over $160 billion of lost revenue.

It gets better when they start multiplying numbers up and claim that approximately $7 trillion of revenue will be lost over the next decade, with the Treasury asserting that taking reasonable measures to close the tax gap should recover at least 10% of that sum.

If only the United Kingdom was in that league.

Even so, while the numbers are disputed, it really should be possible to bring in tens of billions of pounds a year were HMRC to launch a concerted attack on those who illegally avoid (we may dispute the semantics but the principle is valid) and evade tax.

While ministers have a tendency to point the finger at plumbers and builders who prefer to be paid in cash, there seems little reason to believe that the position here is the similar from that in the States with the wealthiest 1% of Brits finding sneaky ways to get out of their tax obligations leading the field.

Measures to get a little bit more money from global giants such as Amazon and Google are already slowly beginning to take shape and may help to a degree.

However, making sure that the rich pay their fair share of taxes should be top of the agenda for any self-respecting Chancellor of the Exchequer, even one who is wealthy himself.

This kind of article usually invites howls of protest from those who run businesses advising the very rich on how to keep their money offshore or out of the clutches of our taxing authorities by various means both legitimate and nefarious.

In addition, many accountants seem to enjoy repeating ad infinitum that people should only pay the correct amount of tax that is due under the laws of the land. Nobody is going to disagree with that. The more significant question is whether the large sums of money that comprise the tax gap, even if it is calculated on a very conservative basis, should really be due under those laws rather than escaping through loopholes or pure cynical evasion of taxes.

Inexplicably, for many years the government has done its damnedest to reduce numbers of workers at HMRC, driving the best out either consciously or through lack of decent pay, career path and respect.

If it was serious about reducing the tax gap and by extension the country’s debt, it should be scoping up resources at the department by employing large numbers of well-qualified individuals charged with going on the offensive.

It is generally recognised that this kind of strategy tends to pay for itself approximately three times over, which makes one wonder why it never seems to form part of our government’s planning.

A cynical friend did recently suggest that the people who would find themselves under attack from schemes of this kind are also those that favour and fund the party currently in government.

That kind of thing happens overseas but surely not in dear old Blighty.

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Replies (5)

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By ireallyshouldknowthisbut
23rd Sep 2021 15:11

I hate to agree with you Philip, but the most effective way of raising tax would to hire legions of high calibre tax inspectors.

This wins on three counts:
1. Actual savings
2. Fear factor of getting caught (probably *10 of the 1st figure)
3. Weeding out poor accountants (probably *even more )

Right now you can go through your business life with fairly good odds of never having so much as a VAT visit, let alone an proper tax inspection. I don't believe HMRC do any routine compliance checks of small limited companies. We file approx. 100 a year and not had one for over 10 years. We could have done all of them wrong for all I or HMRC know.

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By Paul Crowley
24th Sep 2021 19:55

Only Humans can make any attempt at spotting the correct accounts to challenge.
Good quality enquiry work would bring fairness and credibility back to the UK tax system
Cheaper than MTD and likely to raise more money

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By JD
27th Sep 2021 10:19

The difficulty is that it is far too easy and cheaper for governments of all colours to raise tax rates or additional administrative burden (MTD) on the honest, rather than apply appropriate man power, using information they already have (Quality enquiry work/Reports to the NCA) or apply appropriate levels of financial controls to those that are making claims (SEISS, Furlough and benefits generally to list a few).

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By johnjenkins
27th Sep 2021 11:21

You'll never erase the "tax gap". People will always deal in cash or barter. The thing is that the "tax gap" only happens at the beginning, eventually the money comes into the economy and is therefore taxed (not as many times as the treasury would like maybe). The rich have "clever dicky Accountants and solicitors" to hide their dosh. So let's just take all the admin away from HMRC and let them investigate and collect. No more spending time on IR35, MTD, OTS,WT etc.etc.
Agent strategy should be re-vitalised so that we can do our job and HMRC can do theirs.

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By North East Accountant
27th Sep 2021 12:50

Governments never try and address the cause only the symptoms.

It seems that financial crime (and that is what cheating the public purse is) does indeed pay.....

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