Last updated: 01 Jul 2024 04:00 Posted in:
New estimated figures from HMRC for the ‘tax gap’ for 2022-23 show the gap at a record high in cash terms but at a record low as a share of the tax that should be collected.
The tax gap is the difference between the amount of tax that should be paid to HMRC and what is actually paid.
Analysis by the Chartered Institute of Taxation (CIOT) found that the most notable trends are the rising amount lost to non-payment due to corporate insolvencies, and a rise in corporation tax non-compliance by small businesses.
The tax authority’s report puts the tax gap at an estimated £39.8 billion – 4.8% of tax liabilities.
In a statement accompanying its analysis, CIOT commented: “This is the highest the tax gap has ever been in cash terms – up from £38.1 billion in 2021-22 – but as a percentage of the total theoretical liability it represents a fall (from 5.2% to 4.8%) to the lowest figure since the tax gap started being calculated in 2005-6. This reflects substantial increases in both the theoretical and the actual tax take since the pandemic.
“[The] figures mean we now have four years of data since compulsory digital record keeping and quarterly digital reporting for VAT were introduced by HMRC as the first stage of the Making Tax Digital (MTD) project. HMRC stated that this would ‘reduce the amount of tax lost to avoidable errors’. However the amount of tax lost to both error and ‘failure to take reasonable care’ has increased significantly since then, though the overall ‘VAT gap’ has fallen since MTD began.”
John Barnett, Chair of CIOT’s Technical Policy and Oversight Committee, said: “There is something for everyone in these figures. Critics of HMRC can point to a record amount – nearly £40 billion – not being collected, but HMRC can legitimately point out that they are bringing in a record share of the expected tax take. That both these things can be true simultaneously tells us more about current tax levels than anything else.
“There are some alarming revisions in these numbers, especially with respect to small business non-compliance. Rising numbers of business insolvencies (and general inability to pay) are also having an impact on tax collection.
“These figures show there is plenty of work for HMRC to do in a range of areas to reduce the tax gap. However, we should not lose sight of the fact that their record, collecting more than 95% of tax due, compares well internationally.”
“This is the highest the tax gap has ever been in cash terms – up from £38.1 billion in 2021-22 – but as a percentage of the total theoretical liability it represents a fall (from 5.2% to 4.8%) to the lowest figure since the tax gap started being calculated in 2005-6."
The Chartered Institute of Taxation