Uncovering the Surprising Reality of the UK's Tax Gap

The phrase 'tax gap' refers to the difference between the total amount of tax that HM Revenue and Customs (HMRC) expects to collect and the actual amount received. This gap has been a cause for concern for many ...

"This means that almost 5% of the total tax expected will not make its way into the government's coffers!"

While this percentage may seem small to many, in reality, it represents a significant amount of money that could have been used for public services, infrastructure, and other essential projects.

But what is even more surprising is that the tax gap has remained at around 5% for the past six years, despite efforts by HMRC to reduce it. This raises the question: why is the tax gap not closing as a percentage of tax liabilities?

One of the key reasons for the persistent tax gap is the increase in the gap for corporation tax, which has risen from £10.8 billion for 2021/22 to £13.7 billion for 2022/23. This is primarily due to small businesses, which now account for 60% of the overall tax gap.

This is a cause for concern, as small businesses play a crucial role in the UK's economy. The fact that they are responsible for the majority of the tax gap raises questions about their compliance with tax regulations and the effectiveness of HMRC's efforts to close the gap!

Another significant contributor to the tax gap is the VAT gap, which stands at £8.1 billion for 2022/23. While this may seem like a large amount, it is a significant improvement from 2005/06 when the VAT gap was at 13.7% of the total tax gap. This reduction can be attributed to HMRC's efforts to tackle VAT fraud and evasion, but there is still plenty of room for improvement.

HMRC also categorises the tax gap by behaviour, with criminal behaviour being one of the main contributors. The total tax gap attributed to criminal behaviour stands at £11.2 billion for 2022/23, which is equivalent to 28% of the overall tax gap.

This includes evasion, criminal attacks, and the hidden economy. While this percentage has decreased from the previous year, it is still a significant amount of money that could have been used for the betterment of society.

"The UK's tax gap is a complex issue that has far-reaching implications for the country's economy!

While efforts are being made to reduce the tax gap, it remains a significant challenge for HMRC and the government. As a taxpayer, it is essential to understand the tax gap and its impact on your finances.

By doing so, you can ensure that you are fulfilling your tax obligations and contributing to the country's development.

If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.