New figures from HMRC suggest that illegal tax dodging costs the Treasury five times more than the amount lost due to tax avoidance.
The ‘tax gap’ ‒ the difference between the amount of tax due and the amount actually collected ‒ stood at 6.8% or £34bn in 2012-13, up slightly from the 6.6% of the previous year but, according to the Revenue, continuing a broadly downward trend. The tax gap was 8.5% in 2005-6.
On closer inspection by the Chartered Institute of Taxation (CIOT), however, the figures reveal that the lion’s share of money lost to the Treasury comes as a result of frankly nefarious practises. £5.4bn was lost to criminal attacks, £4.1bn to tax evasion and £5.9bn to the UK’s ‘hidden economy’, bringing the total to £15.4bn.
CIOT’s tax policy director, Patrick Stevens, said: “These figures suggest that tax evasion and other illegal activity are costing the exchequer nearly five times as much as tax avoidance. The CIOT has long argued that HMRC needs to put more effort into investigating and prosecuting those who seek to evade tax. The government are right to have put extra resources in this direction, as well as tackling artificial and abusive attempts to avoid tax.”
There should, Mr Stevens said, be a much stronger focus on the part of HMRC on education and simplifying the tax return process, as £7bn a year is being lost through taxpayer error or carelessness.
Umbrella Company employees are amongst those who can sleep easy, as all tax and NICs are automatically dealt with by their Umbrella Services on a PAYE basis.