The Tax Gap
The Tax Gap is the difference between the amount of tax that should be collected, and the amount of tax actually collected. It is the sum total of all of the evasion, avoidance and non-payment that leads to the loss of tax revenue to the government.
The UK government has been collecting data on the Tax Gap since 2005 and was forced to publish it after a long freedom of information battle with Private Eye magazine.
The estimate – now published annually by HMRC – has been criticised for underestimating the true tax gap. For example, the HMRC figures explicitly do not count tax avoidance by multinational companies through profit shifting, which is a major source of tax avoidance. The danger is that without an accurate picture of the Tax Gap, government can become complacent in the fight against tax avoidance.
TaxWatch is keen to hear from researchers with an interest in this area. If you think you could contribute to this project in any way we would love to hear from you.
Please contact us on info [at] taxwatchuk.org
Declaring an interest – why HMRC’s hike in charges on late paid tax is so concerning
Autumn Budget increases interest charge on late paid tax debt, exacerbating problems with those struggling to pay. Interest seems to be used to raise revenue and drive compliance, a concerning development.
TaxWatch’s initial reaction to Autumn Budget 2024
Rachel Reeves’ first Autumn Budget makes for a mixed bag of delivering a fairer tax system whilst raising government revenue
New statistics show £300m lost to offshore tax gap on over 7million accounts held overseas likely to be gross underestimate
HMRC’s first estimate of the offshore tax gap for 2018, seems a wild underestimate at just £300 million based on questionable methodological choices.
New statistics show HMRC’s clampdown on R&D claims beginning to take effect
Latest HMRC figures show the cost of R&D relief claims increasing but in relation to fewer claims being made for 2022-23. This implies HMRC’s compliance changes are discouraging claims that are less likely to be qualifying, especially those of lower value or in particular sectors.
Sweet Deception: £4.4bn tax evasion leaves a sour taste for HMRC
NAO calls out HMRC for not having a strategic plan on tax evasion.
Unveiling the latest Box office smash hit: Creative industry tax relief reach record highs
Record levels of tax relief claimed by the creative industries sector in 2023. The reliefs are now dominated by fewer, extremely large, claims for film and ‘high-end’ TV programmes. TaxWatch questions whether these reliefs offer good value for money given the profitability of expensive productions in light of changes to the Audio Visual Expenditure Credit.
The SME R&D tax relief scheme: lessons in how not to implement a tax relief
Once again, the National Audit Office qualified HMRC’s accounts due to a “material level of error and fraud in Corporation Tax research and development reliefs”. Whilst the good news is that the estimated error rate within the relief is coming down it remains unacceptably high. It has taken years for HMRC to admit there were problems, despite plenty of warnings, and action has been too slow to avoid the situation getting totally out of hand.
Mining the gap
TaxWatch analyses the latest tax gap data and examines manifesto pledges to narrow the gap to see whether they represent credible plans to increase tax revenues
HMRC’s 2024 Tax Gap report: Amount of tax going unpaid hits record high at £39.8bn in 2022-23
TaxWatch analyses the latest Tax Gap publication, noting it has reached £40bn in 2022-23 yet still doesn’t cover offshore matters
Are we nearly there yet? In search of the elusive offshore tax gap
HMRC now says offshore tax gap data will be published in June 2024, two years after the government announced it and a year after the information was due.
Mind the gap: How to collect the right tax?
There are fundamental issues around the subject of compliance for HMRC, which needs, among other things, a proper workforce plan with trained and motivated staff able to deal with all aspects of compliance.
HMRC’s 2023 Tax Gap report: Proportion of tax going unpaid unchanged from previous year
The amount of tax lost in the 2021-22 financial year was 4.8% of the total tax owed, the same figure as the previous year.
Tax Gap Op-Ed in HMRC Magazine
We have recently had an op-ed published in the magazine HMRC Enquiries, Investigations and Powers.
HMRC publishes its 2022 Tax Gap – TaxWatch analysis
HMRC’s Tax Gap increases for second year in a row on a like-for-like basis.
What gets measured gets done?
We ask whether the current metrics used by HMRC are sufficiently robust to allow Parliament and other interested parties to hold the government to account
HMRC Tax Gap on the rise, but figures leave more questions than answers
TaxWatch responds to HMRC’s latest “Tax Gap” figures – in cash terms the highest on record.