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Tax gap steady but loss to errors and carelessness rising

by LLB Editor
23rd Jun 23 8:50 am

Tax Gap’ figures published today show the gap remaining steady as a share of the tax that should be collected.

The gap was up by £5 billion in absolute terms in 2021-22 but this is in line with an increase in the theoretical tax liability during a year when the tax take recovered from a sharp dip during the coronavirus pandemic.

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. Today’s HMRC report looks at the estimated tax gap in 2021-22, but also revises some figures for earlier years. The report puts the tax gap at an estimated £35.8 billion, which is 4.8 per cent of tax liabilities. It was also 4.8 per cent in 2020-21, though it had been on a mostly downward trend over the previous seven years, from 7.2 per cent in 2013-14.

Today’s figures mean we now have three years of data since compulsory digital record keeping and quarterly digital reporting for VAT were introduced by HMRC as the first stage of the Making Tax Digital (MTD) project. HMRC stated that this would ‘reduce the amount of tax lost to avoidable errors’.

However the amount of tax lost to both error and ‘failure to take reasonable care’ has increased significantly in the latest figures, though the overall ‘VAT gap’ has fallen since MTD began.

John Barnett, Chair of CIOT’s Technical Policy and Oversight Committee, said: “On the face of it the pandemic has not had a significant effect on the tax gap, and nor has the introduction of Making Tax Digital.

“The figures suggest HMRC are still collecting about 95 per cent of tax due, which compares well internationally.”

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