UK's tax gap rises by £1bn to £35bn

HMRC says increase in value of tax lost through non-payment and avoidance schemes reflects rise in VAT rate to 20%

The amount of tax lost through non-payment and avoidance increased last year to £35bn, according to official figures released on Friday.

Revenue & Customs (HMRC) said the gap between tax owed and tax paid had increased by £1bn in 2011-12, up from £34bn the previous year, which it partly blamed on the rise in the standard VAT rate to 20%, which meant the amount owed had increased.

An HMRC spokesman said the longer-term trend was still downwards, as inspectors clamp down on individuals and companies. But the increase has been seized upon by critics as evidence that the government is failing to stop criminals or close loopholes.

Mark Serwotka, general secretary of the union PCS, which represents HMRC staff, said the figures were an underestimation of the true tax gap and that ministers' claims that officials were clamping down on tax avoidance and evasion while cutting staff were nonsense.

"We think this seriously underestimates the extent of uncollected tax – our research shows our public finances miss out on more than £120bn a year," he said. "But even by the government's estimate, these are huge sums that we are owed and should be collected and it makes no sense to cut staff and resources at the department responsible for doing that."

Fiona Mactaggart, a Labour member of the Commons public accounts committee, said HMRC was too relaxed about the problem. "The government targets benefit fraudsters, but that bill is a fraction of this figure. If we dealt with the tax gap, we would get rid of the deficit."

The tax gap is compiled from about 30 separate estimates for different taxes. It is broken down by type of tax, customer group and customer behaviours, including tax evasion and avoidance, customer error, the hidden economy, criminal attacks and where tax cannot be collected because of insolvency.

HMRC officials said the gap had fallen steadily over the past six years, from 8.3% of tax due in 2005-06 to 7.1% in 2010-11 and 7% in 2011-12.

The Exchequer secretary, David Gauke, said: "The vast majority of businesses and individuals pay the taxes they owe. But where they don't, it is for HMRC to challenge non-compliance fiercely.

" Since 2010, the government has invested nearly £1bn in additional compliance initiatives over the spending review period. HMRC is on track to secure a further £44bn in tax revenues over the next two years."

The figures suggest £5.1bn was lost as a result of evasion, £4.7bn as a result of criminal activity including fraud and smuggling, and £4bn through avoidance schemes.

Official estimates indicated £11.4bn of VAT, £15.3bn of income tax, £4.7bn in corporation tax and £2.5bn excise duties was not collected in 2011-12.

Labour said the figures showed the government was failing to tackle the problem.

Shadow exchequer secretary Shabana Mahmood said: "At a time when millions are struggling with the rising cost of living and the deficit is high, it's even more vital that everyone pays their fair share of tax.

"But these figures show the Government is failing to tackle tax avoidance and evasion with the value of the tax gap now up to £35 billion," she said.


Rajeev Syal

The GuardianTramp

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