Tax Gap Steady, But Loss To Errors And Carelessness Rising

The latest figures on the 'Tax Gap' reveal that it continues to remain steady as a proportion of the total tax that should be collected in the United Kingdom ...

Although the absolute gap increased by £5 billion during the 2021-22 period, this can be attributed to the rise in theoretical tax liability following the recovery from the economic downturn caused by the COVID-19 pandemic.

"The Tax Gap is the disparity between the tax that should ideally be paid to HMRC and the actual amount paid!"

According to the report, the tax gap is estimated to be £35.8 billion, equivalent to 4.8% of tax liabilities. This percentage remains consistent with the previous year (2020-21) and marks a downward trend over the past seven years, starting from 7.2% in 2013-14.

The availability of three years' worth of data since the introduction of compulsory digital record-keeping and quarterly digital reporting for VAT under the Making Tax Digital (MTD) project allows for a closer examination of the impact of these measures.

"HMRC anticipated that MTD would reduce the amount of tax lost due to avoidable errors!"

However, the latest figures indicate a significant increase in the losses incurred both from errors and a 'failure to take reasonable care', even though the overall VAT gap has decreased since the implementation of MTD.

I believe the pandemic and the introduction of Making Tax Digital has had little effect on the tax gap. HMRC continues to collect approximately 95% of the tax due, showcasing a favourable performance compared to international standards.

In 2021-22, tax losses attributed to taxpayers' failure to take reasonable care amounted to £10.7 billion (1.4% of the total theoretical liability), while losses due to taxpayer errors reached £5.4 billion (0.7%)!

These figures increased from the previous year, signifying a rising trend. It's quite astounding that £16 billion of the tax gap stems from errors and a failure to take reasonable care, underlining the complexity of the tax system.

Thankfully, none of that came from Essendon clients.

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