The monetary value of the UK’s tax gap (the difference between what UK tax should have, in theory, be paid and was actually paid) has increased by 12% in the last year from £52.8billion to £59.2billion. This is the highest it has been in monetary terms since 2005-06 (the earliest year in which current HMRC publications track the tax gap).
Corporation tax makes up approximately 35% of the total accounting for £21billion* up from £19.6billion last year.
According to multinational law firm Pinsent Masons, the underpayment of VAT accounts for £12.1billion, up from £10.3billion in the previous year, representing 20% of the total tax gap.
“We expect that VAT and Corporation Tax investigations will be an area of major focus for HMRC during the next year and beyond as they account for such large segments of underpaid tax.”
“The Government clearly believes that there is potential to significantly reduce the UK’s tax gap. They are recruiting 8,000 new HMRC staff whose job will be to carry out more tax investigations and accelerate the collection of unpaid taxes.”
“HMRC has been given a clear mandate to close the tax gap and the resources to do it. The combination of rising Corporation Tax and VAT contributions to the tax gap coupled with a significant expansion of HMRC’s compliance workforce is likely to translate into more enquiries, more information requests and more formal investigations.”
“Businesses should not assume that only aggressive tax planning will attract attention – HMRC is increasingly looking at errors, governance and compliance processes as well. Organisations that are well prepared and can clearly evidence their tax positions will be in a much stronger position if HMRC comes knocking.”
Ian Robotham at Pinsent Masons
*Net tax gap ie total underpaid after compliance take and non-payment
