The Tax Gap is the difference between the amount of tax that should be collected, and the amount of tax actually collected. It is the sum total of all of the evasion, avoidance and non-payment that leads to the loss of tax revenue to the government.
The UK government has been collecting data on the Tax Gap since 2005 and was forced to publish it after a long freedom of information battle with Private Eye magazine.
The estimate – now published annually by HMRC – has been criticised for underestimating the true tax gap. For example, the HMRC figures explicitly do not count tax avoidance by multinational companies through profit shifting, which is a major source of tax avoidance. The danger is that without an accurate picture of the Tax Gap, government can become complacent in the fight against tax avoidance.
Casting a critical eye over the Tax Gap will be an important part of TaxWatch’s ongoing work. Over the coming months and years, we will be publishing a series of papers and studies on this issue, with the aim of improving the state of information on tax gaps in the UK and monitoring progress in tackling it.
TaxWatch is keen to hear from researchers with an interest in this area. If you think you could contribute to this project in any way we would love to hear from you.
Please contact our director, George Turner on george [at] taxwatchuk.org
Photograph – A pile of £50 notes courtesy of Images of Money on Flickr