Uncovering the Surprising Reality of the UK's Tax Gap
It's a very complex issue ...
Posted by Roger Eddowes on 25/07/2024 @ 8:00AM
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 ...
While efforts are being made to reduce the tax gap, it remains a significant challenge for HMRC!
It represents a significant loss of revenue for the government. The latest figures released by HMRC estimate the tax gap for 2022/23 to be a staggering £39.8 billion, which is equal to 4.8% of tax liabilities.
"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.
Until next time ...
ROGER EDDOWES Business Godparent
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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