HMRC has released news that the UK tax gap, the difference between tax collected and tax owed, has again steadily fallen. The 2013-14 tax gap result was 6.4%, which has fallen from 8.4% recorded in 2005-06.
HMRC boasts that this reduction in the percentage gap has recouped an additional £57bn in cumulative tax in the last eight years.
HMRC’s Edward Troup recently wrote an article in Taxation magazine detailing HMRC’s methods in measuring the gap and its importance.
In the article, Troup set out the techniques used include utilizing data from random enquiry programmes (REPs) which they obtain from the self assessment returns of individuals and businesses. Speaking of the using REPs, Troup said, “Not only do they provide vital information on the nature and level of non-compliance in these populations, but the fact that we undertake random enquiries is a deterrent: all taxpayers are equally likely to have their returns examined in this detail.
Troup emphasised the importance of this data is the public perception transparency. “This 'perception gap' between what people think about non-compliance and the objective truth is important; if people think everybody is at it, they are more likely to dodge tax themselves,” Troup writes.
Troup hopes HMRC’s transparency in releasing the tax gap data will reduce the gap further. While calculating and publishing this data is time consuming, Troup writes that understanding the tax gap helps HMRC understand where non-compliance occurs. “In 2014/15, HMRC brought in arecord £518bn in tax revenues, and we secured £26.6bn in additional compliance revenues; tax that would have otherwise gone unpaid.” As well as that the tax gap, Troup writes, helps the department understand where to direct their resources in tackling evasion and avoidance, and provides information on their long term performance.
Finance secretary David Gauke was also strident in the importance of this figure. “There is understandable anger when individuals or companies are perceived not to be contributing their fair share, but we can reassure the public that the proportion going unpaid is low and this Government is dedicated to bringing it down further.” Gauke claimed that if the tax percentage had stayed at its 2009-10 value of 7.3%, £14.5bn less tax would have been collected.
Richard Murphy, however, was less enthusiastic, calling the tax gap result a ‘farcical figure’. Writing on his blog, Murphy shrugged off HMRC’s announcement by saying that the result is ‘pretty much the same as the year before that and the year before that and the….’
Murphy disregarded the data HMRC released, and instead sourced data from the Bank of England which accepts that there is a shadow economy exceeding 10% in the UK. “How come the tax lost on that unrecorded income is, if HMRC are right, due at only 6.3% when the reality is that tax on GDP as a whole exceeds 35%?”
Murphy goes on to say that, in his findings, the claim that tax evasion is low would only make sense if the shadow economy is less than 3% of GDP or much of the activity in the shadow economy is exempt from tax, which would, Murphy quipped, ‘make not declaring it pointless’.