UK economy losing out on £35bn worth of tax

Last week, HMRC’s 60-page Measuring Tax Gaps 2013 published statistics showing how much the Exchequer was out of pocket because of tax avoidance, evasion, errors in reporting, criminal activity and the black market.

According to the report, in the tax year 2011-2012, HMRC was down £35bn as a result of these activities.

However, a large share of this sum was the result of people simply not understanding or not filling in the self-assessment forms properly.

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The figures show there was up to £15.3bn worth of missing Income Tax, National Insurance Contributions and Capital Gains Tax, compared with £4.7bn missing corporation tax.

Some £5.3bn was down to individuals and large partnerships in self-assessment, and £3.8bn from employers through the pay as you earn scheme.

HMRC also said there was at least £2bn lost through avoidance, while £4.3bn fell into the ‘hidden economy’.

Some £4.3bn is as a result of ‘failure to take reasonable care’, according to the government, while £2.9bn is the result of error. HMRC said this could also be the result of differences in interpretation of the law between HMRC and taxpayers.

Income tax, NI contributions and Capital Gains Tax gap estimates 2011 to 2012

Self-Assessment total17.4% £5.2bn
Total PAYE1.7%£3.8bn
Total IT, NICs, CGT avoidancen/a£2bn
Total hidden economy 5.8%£15.3bn
Source: HMRC

Adviser view

Ronnie Ludwig, partner in the private wealth group at London-based Saffery Champness, said: “It is striking that errors and a lack of care in reporting earnings are costing the nation almost as much as carefully engineered structures to facilitate tax avoidance and evasion.

“This should be a wake-up call – education for taxpayers has a role to play here, as there is surely huge scope for improvement.

“While the current efforts directed against avoidance and evasion by corporations are entirely justified, the Exchequer is also losing out on billions of pounds because of underhand practices by individual businessmen. Given today’s figures, these individuals will no doubt be high-priority targets for HMRC.”