Following the release of HMRC’s 2024 edition of ‘Measuring tax gaps’, which is the difference between the amount of tax that should in theory be paid and what is actually paid, Rachael Griffin, tax and financial planning expert at Quilter, has shared her analysis as follows:
The tax gap has fallen to its lowest level for nearly two decades yet one of the major pledges from Labour is that it will close this gap even further. While HMRC has ensured that 95.2% of all taxes were collected successfully, significant issues within the system remain unaddressed. If Labour does win the general election, then unlocking additional tax revenue from fixing the leaking system is certainly possible but whether it’s realistic in a short time frame is less likely.
One of Labour’s big sources of funding for its manifesto pledges is to raise over £5 billion annually by enhancing HMRC funding, adding compliance officers, and investing in further digitisation to help close the tax gap further without having to raise taxes.
Although further investment into HMRC will certainly help, wholesale simplification of the tax system could have a much more dramatic impact on the tax gap. The stability of the tax gap over recent years underscores the need for radical change to ensure that the public coffers are refilled following this difficult economic period. The tax gap for the 2012/13 tax year was 6.5% and a decade on this figure has only dropped by 1.7%.
There is a significant amount of additional revenue available if its grasped. Labour’s proposal to expand the Disclosure of Tax Avoidance Schemes regime and improve HMRC’s use of criminal powers shows a commitment to addressing both small business errors and offshore tax evasion.
Initiatives like Making Tax Digital should help streamline processes and reduce errors but emerging challenges such as the growing popularity of crypto assets require further attention. The opportunity for further tax revenues without having to put up taxes is certainly there but it’s not easy to grasp.
