Figures show tax gap is continuing to fall

George Hay Chartered Accountants

Figures released by HM Revenue & Customs (HMRC) show that the UK’s tax gap, for the year 2016/17, was 5.7 per cent.

This figure represents no change when compared with last years, which was revised down from 6 per cent to 5.7 per cent, but does represent a significant fall in the tax gap since 2005-06 when it was reported as 7.3 per cent.

HMRC says that, had the tax gap not dropped as it did, a total of £71 billion less in tax would have been collected last year.

The figures also show that of the total amount of tax that was unpaid, the largest proportion was from small businesses, with £13.7 billion not paid.

According to HMRC, taxpayer error was nearly twice as likely as misconduct to be the reason for missing tax, with errors costing HMRC £9.2 billion in lost income, while criminality cost £5.4 billion.

Meanwhile, Income Tax, National Insurance and Capital Gains Tax had the biggest tax gap at £7.9 billion. The VAT gap, on the other hand, has fallen from 12.5 per cent in 2015-06 to 8.9 per cent in 2016-17.

Mel Stride, Financial Secretary to the Treasury, said: “These really positive figures show that the tax gap is the lowest in the last five years, which reflects the hard work that HMRC and I have been doing to ensure we support businesses to pay the right tax at the right time and clamp down on tax evasion and avoidance.”

“Collecting taxes is essential for funding our vital public services such as the NHS – indeed, had the tax gap remained at its 2005/06 level the UK would have lost £71 billion in revenue destined for public services, enough to build 200 hospitals.”

Phil Blackburn, Partner at George Hay, said: “HMRC are increasingly cracking down on basic errors made by taxpayers – to identify new sources of revenue and ultimately bump up their tax take.”

“This means that small businesses and individuals, who can sometimes lack the expertise and professional support needed to ensure they are fully compliant with tax legislation, could become more vulnerable to tax investigations.”

HMRC has confirmed its intention to continue the roll-out of Making Tax Digital and it believes that the regime will help to reduce the tax gap further by helping to prevent error.

Digital record keeping combined with a more contemporary and automated tax system should, it anticipates, help businesses to get their affairs right the first time.

Phil comments: “Whether the roll out of MTD alone is enough to reduce the tax gap further, remains to be seen. HMRC should also prioritise educating taxpayers, eliminating the shortfall in tax knowledge amongst smaller businesses and helping them to better understand their tax obligations.”

Tax issues are an integral part of financial planning and control. Ever changing tax “goalposts” means you need your tax advisor to stay one step ahead and to be aware of all the possible tax advantages that could benefit your business. Our experts can help you to compliantly reduce your tax burden as well as save you time and eliminate confusion when dealing with HMRC.

Our advisors also have years of experience when it comes to dealing with both personal and business tax enquiries and investigations, helping our clients to reach a satisfactory conclusion and leaving them with peace of mind when it comes to their tax affairs.

To discuss your circumstances in more detail, call us today on 01767 315010.

Link: Low tax gap results in £71 billion for UK public services