HMRC Tax Gap on the rise, but figures leave more questions than answers

by | Jun 20, 2019

HMRC has this morning published its latest estimate of uncollected taxes, the “Tax Gap”. It shows that on the HMRC methodology the amount of tax uncollected went up by £2bn in 2018 to £35bn. This is in cash terms the highest on record and an increase of 17% from £30bn in the last three years. The increase of £2bn over the last year is enough to fund the entire courts system.

However, the HMRC methodology continues to raise serious questions about the reliability of the tax gap figure. Of most concern is the fact that HMRC explicitly do not count tax losses to profit shifting from multinational enterprises. These are the types of schemes implemented by some large technology companies, and are estimated to lose the UK Treasury many billions a year in untaxed revenue. The result is that the HMRC Tax Gap methodology seriously underestimates the true scale of tax avoidance in the UK.

Commenting on the release of the new Tax Gap figures, George Turner, Director of Tax Watch said:

“Once again HMRC has released an estimate of tax avoidance which does not include the billions lost to multinational companies via profit shifting. As a result, HMRC’s “Tax Gap” vastly underestimates the scale of the issue, and can not be considered to be a credible estimate of tax avoidance in the UK.

“The claim that the UK has the lowest tax gap in the world is highly dubious. HMRC themselves say they are the only tax authority in the world to publish an annual estimate of the tax gap that covers a comprehensive range of taxes. Any international comparisons are not being made on a like for like basis and are therefore pretty meaningless.

“Overall, the publication of the Tax Gap tells us more about the determination of the government to play down the importance of tax avoidance rather than make the investment required to adequately address the issue”

TaxWatch was referenced in Public Finance on the issue.

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