HM Revenue and Customs (HMRC) has revealed that the amount of unpaid tax in the UK has remained at an all-time low of 4.8%. The annual Measuring Tax Gaps publication provides an estimate of the difference between the expected tax payments and the actual tax payments. This figure has remained consistent with last year’s revised estimate. The report highlights the efforts of HMRC to ensure that taxpayers pay the correct amount and addresses common mistakes, lack of care, and deliberate attempts to hide income.
Long-Term Reduction in the Tax Gap
The Measuring Tax Gaps publication demonstrates a continuous decrease in the tax gap over the years. Factors such as errors, lack of sufficient care, evasion, and criminal attacks contribute to the tax gap. From 2005 to 2006, the tax gap has significantly reduced from 7.5% to the current 4.8% in the 2021 to 2022 period. This long-term reduction reflects the effectiveness of measures implemented by HMRC to improve tax compliance.
Monetary Figures and Tax Liability
In terms of monetary value, the tax gap for the 2021 to 2022 tax year is estimated at £36 billion, representing the difference between expected and actual tax payments. This is an increase from £31 billion in the previous year. The tax gap of 4.8% is attributed to a rise in estimated tax liabilities from £643 billion to £739 billion during the same period. These figures underscore the significance of accurate tax assessment and collection.
Distribution of the Tax Gap
The tax gap is distributed among various groups and types of taxes. Small businesses account for the largest proportion of the tax gap at 56% (£20.2 billion), followed by criminals, large businesses, and mid-sized businesses at 11% each (£4.1 billion, £3.9 billion, and £3.8 billion, respectively). Wealthy individuals represent 5% (£1.7 billion), while all other individuals account for 6% (£2.1 billion) of the overall tax gap. When measured by tax type, Income Tax, National Insurance contributions, and Capital Gains Tax contribute 35% (£12.7 billion) to the total tax gap, while Corporation Tax stands at 30% (£10.6 billion).
Understanding the VAT Gap
The VAT gap, which measures the difference between the expected and actual VAT payments, has been on a downward trend. It has fallen from 14.0% (£11.9 billion) in 2005 to 2006 to 5.4% (£7.6 billion) in the current period. This decrease demonstrates the effectiveness of HMRC’s efforts in tackling VAT-related discrepancies and improving compliance.
Addressing the Tax Gap
The tax gap can be attributed to various behavioral reasons, including failure to take reasonable care (30%), error (15%), evasion (13%), legal interpretation (12%), criminal attacks (11%), and non-payment (9%). HMRC emphasizes transparency by publishing the tax gap report, aiming to enhance public trust in the tax system and HMRC’s ability to support taxpayers in meeting their obligations. The findings also inform HMRC’s future priorities and guide efforts to make a significant difference in reducing the tax gap.
Source: Gov[Dot]UK
