Latest ‘tax gap’ figures published
HMRC has published figures that show the tax gap has fallen to 6.5% for the 2014-15 tax year. The tax gap is basically the difference between the amount of tax due and the amount of tax collected by the Exchequer. The gap includes tax that has been avoided in the UK’s black economy, criminal activities and through tax avoidance and evasion.
The 6.5% figure is the lowest-ever percentage calculated by HMRC and is significantly less than the 8.3% figure recorded in 2005-6. In a press release published by HMRC, we are told that if the tax gap had remained at the 2005 to 2006 level of 8.3%, it would have grown to £47 billion and the country would have been £11 billion a year poorer.
One of the main contributory factors in reducing the tax gap was the introduction of the Real Time Information (RTI) system for PAYE in April 2013. The system involves employers sending HMRC information about tax and other deductions from employees’ pay when the employee is paid rather than the old system that waited till the end of the tax year.
This change has had a significant effect in increasing compliance associated with the payment of payroll taxes. The introduction of VAT online has also helped reduce the VAT gap to its lowest level ever recorded although the tax gap remains high at 10.3% (£12.7 billion).
The Financial Secretary to the Treasury, Jane Ellison said:
‘This government is committed to tackling tax evasion and avoidance wherever it occurs. The UK has one of the lowest tax gaps in the world. By investing £1.8 billion since 2010 in boosting HMRC compliance capabilities, we’ve brought our tax gap down to its lowest ever level. And to make it even easier for people to pay the right tax in the future, we’ve invested £1.3 billion in new digital tools.’