We’ve written for many years about the UK’s stubbornly high tax gap. This is the amount of tax that should have been paid if businesses and individuals had complied with all applicable tax legislation, but hasn’t been. The figure is estimated by HMRC for each tax year, and our commentary on the most recent figures – for 2021-22 – can be found here. We’ve led calls for investment in HMRC compliance to chase down revenues owed to the UK that remain uncollected.
So, a recent story about multinational companies underpaying billions of pounds of UK tax caught our attention. But it turns out the figures in the story aren’t quite what they seem. We checked with HMRC and the numbers relate to what’s known as ‘tax under consideration’. This is an upper bound of all tax risks, across multiple years, for all businesses within HMRC’s “Large Business” segment, prior to any enquiries into tax returns to establish the facts. The figures include all types of tax liability, including VAT, employment taxes and all aspects of corporation taxes – so much wider than profit shifting/transfer pricing risks, as the article implied. Total tax under consideration at 31 Match 2023 amounts to £37.8bn (of which £11.5bn is non-UK), compared to the Large Business component of most recent equivalent tax gap amount, which is £3.9bn for 2021-22.
While the story also breaks the total tax under consideration figure down by country, we don’t that HMRC currently attempts to subdivide the tax gap figures by geographic unit. Nor do we believe they should, as it would be impossible to do so , from a statistical perspective. HMRC’s resources are, in our view, much better focused on driving down the tax gap and collecting the requisite revenues due. There’s plenty more work still to do.