A few weeks ago, I wrote about the tax gap and how it was unfortunate that the figures were published at the same time Theresa May said taxes would need to rise in order to provide extra health service funding.
The tax gap, as it’s quaintly known, is the difference between the amount of tax collected and the figure that should have been collected. HMRC reckons it is about £33 billion (you can read all the stats here). It and the government are happy with ‘progress’ in getting that figure to where it is (and it would seem has been since about 2005-06, give or take the odd billion or six.)
The ‘gap’ is a result of human error (deliberate or otherwise), avoidance, evasion, the grey economy etc. Not to mention an ultra-complex tax system! It is clearly difficult to work out the exact figure. Probably impossible.
Lowest for five years
Jon Thompson, HMRC’s chief, says: “The UK is the only country in the world to regularly publish their tax gap in detail and, at 5.7 per cent, it remains at its lowest for five years. I am pleased that the downward trend shows HMRC and HM Treasury’s continued hard work to tackle evasion and avoidance is working.
“HMRC is also working hard to help taxpayers get their tax right by offering support and investing in digital services to improve businesses’ record keeping and reduce errors.”
I found an interesting take on all this by Donald Drysdale, of Taxing Words, on the ICAS website. Far from rejoicing in the progress in reducing the gap, Donald suggests it is a cost the nation can’t really afford.
Cumulative tax gap
He says: “Over 12 years the cumulative tax gap has reportedly amounted to an astonishing £370 billion. In relation to the nation’s finances, that’s a colossal figure.”
It is more than one-sixth of current UK government debt of £1.78 trillion.
“The annual report on measuring tax gaps has become something of a public relations exercise, vindicating their strategies, excusing their failures and putting blame firmly on others,” adds Donald.
It seems that small businesses are being highlighted as tax-gap problematic at the moment, which would be convenient given the Making Tax Digital exercise. (Note the above quote by Jon Thompson)
Tax lost through evasion
To read the news headlines, tax avoidance is the major sticking point, yet the £1.7 billion cost for 2016/17, is 5 per cent of the total tax gap. As Donald points out: “… tax lost through evasion, the hidden economy and criminal attacks on the tax system add up to £13.9 billion (42 per cent).
“And it is on reading this statistic that I begin to question whether HMRC are equal to the task of administering our existing tax regime, warts and all.”
UK tax laws are too complex for taxpayers to comprehend and are even too convoluted for HMRC’s software engineers to programme. New tax laws, and changes to existing provisions, are promoted by governments and their chancellors and MPs, many of whom fail to understand their true implications.
“HMRC considers that a massive tax cost of £5.3 billion (16 per cent of the tax gap) relates to instances where taxpayers’ and HMRC’s interpretations of tax laws differ.
“Hardworking taxpayers are now being told that tax increases will be necessary to raise additional funding for the NHS and other public expenditure. As a quid pro quo, our broken tax system needs to be mended so that it operates more fairly. Governments and politicians must take a large slice of the blame for their serial failure to create tax laws which can be enforced.”
I’m fairly new to the world of accounting …. but I would second that!