UK Tax Gap Widens To £35bn, HMRC

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The amount of money heading to the UK’s national coffers from taxes is coming up short by £35bn.

According to figures released by the revenue this week, the so-called tax gap  the difference between what should be paid to HMRC in taxes and what’s actually being received  is continuing to rise.

Some of the biggest increases in this year’s gap are down to individuals. And we’re not just talking about highly paid celebrities either.

At £12.9bn, the biggest type of shortfall comes from income tax, national insurance contributions and capital gains tax.

And while big businesses have underpaid by £7.7bn, up from £7.2bn last year, income from small businesses, which make up the majority of the British economy, is short by £14bn, up from £12.3bn last year.

The VAT tax gap is now £12.5bn, up 13 per cent in a year. That means almost 10p in every pound is missing from this type of revenue alone.

At the same time, the self-assessment tax gap is now 17 per cent of expected revenue. Up by 10 per cent in the last year, people completing a self-assessment tax return are underpaying their dues by £7.4bn a year.

That doesn’t include the so-called hidden economy. “Ghosts” who don’t declare any of their income to HMRC and “moonlighters” who only own up to some of it now cost the economy £1.9bn a year.

In fact, HMRC collected more than 94 per cent of all the taxes due for the 2017-18 year. But with a recent emphasis on tightening up and resources being thrown at making sure the right taxes are paid by the right people, the £2bn increase in the amount of tax being lost every year has got to grate.

“HMRC and the Treasury are going to be disappointed with this performance,” says Jason Collins, head of tax for law firm Pinsent Masons.

“HMRC is now a very driven organisation so the idea that there is £35bn in underpaid tax and over £10bn in underpaid tax through evasion and other criminal behaviour is going to be a trigger for much more investigatory activity.”

“The increase in the gap is surprising given the tools, powers and money HMRC has been given in recent times, and no doubt there will be a clamour for them to be given more.”