Latest tax gap sits at £33 billion

Jul 16, 2018

HMRC have released the most recent report on the tax gap, which examines the gap in the 2016-17 tax year.  According to the report, the gap is estimated to be £33 billion (5.7 percent). The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. HMRC’s accounts for 2017/18 have also been published.

The Tax Gap report key findings were as follows:-

  • There has been a long-term reduction in the overall tax gap, from 7.3 percent in 2005-06 to 5.7 percent in 2016-17;
  • The tax gap for income tax, NIC and capital gains tax was 4.2 percent in 2016-17 — its joint lowest level since 2009-10;
  • There has been a long-term reduction between 2005-06 and 2016-17 for the VAT gap (12.5 percent to 8.9 percent) and for the duty-only excise tax gap (8.1 percent to 5.8 percent);
  • The corporation tax gap has been on a long-term downward trend, from 12.4 percent in 2005-06 to 7.4 percent in 2016-17; and
  • There has been a steady downward trend in the avoidance tax gap, from £4.9 billion in 2005-06 to £1.7 billion in 2016-17

According to the report, small businesses are the largest contributor to the tax gap, making up 41 percent. The corporation tax section of the report now gives information on how the net gap is calculated across the various segments of Large Business (“LB”), Mid-size Business (“MSB”) and Small Business (“SB”).

LB is viewed as very effective at reducing the tax gap as nearly 75 percent of the gross gap is recovered in compliance yield. However, the MSB and Small Business teams are seen as less effective, with 33 percent and 7 percent compliance yields respectively.