Newly released government figures show a yawning annual tax gap which could well result in more freelance contractors switching to umbrella companies to get their tax affairs handled properly.

In fact, the Chartered Institute of Taxation (CIOT), which has participated on the Government’s Compliance Forum, is advising freelancers to consider agency payroll solutions or advice from specialist tax consultants in the wake of the estimated tax shortfall, as HMRC is likely to toughen its procedures to investigate and prosecute those who evade tax payments.

In the tax year ending in April 2010, the Revenue received payments that were £35 billion below the total due in tax liability. A further £6 billion was lost due to taxpayer error and carelessness. The CIOT believes that HMRC clients need advisers such as PAYE umbrella agency services or tax specialists to keep their records in good order and pay their tax accurately.

The CIOT also had some sharp words for HMRC, too, through its spokesperson Gary Ashford, who sits on the Compliance Forum. He said “It is not only taxpayers who make mistakes. As the recent Treasury Committee report illustrated, HMRC’s own systems are prone to error and make the task faced by taxpayers needlessly difficult. If HMRC want to improve compliance and reduce error levels they also need to make it easier for people to contact them and get advice that is prompt, accurate and understandable.”

For its part, HMRC says it is determined to reduce the tax shortfall and will continue its efforts to ensure that people pay “the right tax at the right time”.

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