Tax gap figures increase pressure on HMRC

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Tax gap figures increase pressure on HMRC

The UK fiscal deficit in 2012-13 was 6.8% tax liabilities or £34 billion, according to the latest estimates from HMRC.

Estimates for 2011-12 were reduced from £35 billion to £33 billion, or 6.6%, reflecting the “continuous improvement of reporting and updated data.”

“The long-term trend is negative, with fiscal deficit falling from 8.5% in 2005-06, HMRC said. The department determines the tax gap as “the difference between the tax that is due, in theory, collected by HMRC, in contrast to what is actually taken.”

David Gauke, Financial Secretary to the Treasury, said: “Since the 2010/11 fiscal gap remains lower than at any time during the previous government, saving you 4 billion pounds. Today’s figures show that we have a lot to do, but our continuous effort to combat this means evasion and avoidance is down.”

Increased Pressure

George Bull, of Baker Tilly said disappointing tax revenues this year and the increase in the budget deficit for the first time since 2005 will “pile more pressure on HMRC to maximise recovery of taxpayers.”

Bull adds that we have seen recently that the Italian economy avoided recession due to the sector of organised crime on the rise, and oddly enough, HMRC suggests that in the UK £5.9 billion – 17% of the total tax gap – is lost due to the economy. But who is to know if it’s correct, because the reality is that it may be more than the estimate.

Chartered Institute of Taxation said HMRC estimated total includes £3.1 billion lost to tax evasion, down 3.4 billion pounds for 2011/12. The estimate for 2011-12 was 4 billion pounds.

“However, £5.4bn was lost to criminal attacks, £4.1 billion to evasion and £5.9 billion was lost in a “grey zone”, a total of £15.4bn of illegal activity,” said the CIOT.

“This data suggests that tax evasion and other illegal activities cost the Treasury nearly five times the avoidance of tax. The CIOT have long argued that HMRC put more effort to investigate and prosecute those who try to avoid paying.

Corporation Tax

Stephen Herring, head of taxation Institute of Directors, said that HMRC calculates the tax element corporation tax gap by £3.9 billion, and 9% tax liabilities of companies.

The third category of small and medium-sized enterprises (SMEs), HMRC estimate the tax gap was reduced to 17% of the theoretical commitments 2005-06 to 11% in 2012-13. This is a significant decrease in the percentage of the tax gap for SMEs.

The report said the percentage of SMEs filing an incorrect return leads to the loss of tax that “has been reduced from 41% to 24% in 2009/10 in 2005-06 before rising to 28% in 2010/11.”

Methodologies

Tax activist Richard Murphy said HMRC continue to “seriously underestimate” the tax gap, because their estimates are based on tax returns received.

Murphy’s report to the public and commercial Union (PCS), published last month, estimates the tax gap for 2013/14 £ 119.4bn.

An IMF assessment published in August 2013, said: “Overall, the models and methods used by HMRC to assess the tax gap through taxation are robust and consistent with the general methods used by other countries.” The IMF stated that “tax gap analysis programs by HMRC are a comprehensive coverage of taxes [and] effectively solve many dimensions, and they are trying to improve their support for the management of HMRC.”

Earlier this week, the Financial Times reported that the number of criminal proceedings relating to tax fraud has increased by almost a third in the past year: “The prosecutor went from 617 to 795 in 2012-13, in 2013/14, an increase of 29%, according to data obtained by the data provider Thomson Reuters.”
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