UK’s tax gap rises to £35 billion amid claims Government is failing to act

Official figures released on Friday have shown the total amount of tax lost through non-payment has increased to £35 billion since last year.

HM Revenue and Customs (HMRC) have publicly defended their efforts to combat tax evasion by blaming the increase of £1 billion on the rise in the standard VAT – which has led to an increase in the total amount owed.

A spokesman has said the ratio between tax owed and paid is still witnessing a downward trend.

In the 2005 – 2006 tax period 8.3% of tax was owed; in the 2011 – 2012 period the figure stood at 7%.

How evaders are categorised

Statistics suggest that 93% of tax is paid; consequently helping to lower the deficit and fuel the UK’s public services.

According to a report by HM Revenue and Customs (HMRC), of those who do not pay, the majority are evading, hiding wealth or participating in a criminal attack (46%), with a sizeable amount simply avoiding the tax (14%).

To put this in monetary terms, figures suggest over £5.1 billion was lost due to evasion, £4.7 billion due to criminal activity, and £4 billion via avoidance schemes.

Lesser amounts of people either differ in their legal interpretation of due taxes (13%), refuse to pay (12%), have made in error in their calculations (6%), or fail to take a reasonable amount of care when paying tax (9%).

How evaders are being caught

The biggest push in HMRC’s pursuit of such tax evaders has come with technological advancements. Recent changes in technology and data sharing has allowed HMRC to break down barriers and reveal tax offenders by looking at aggregated data on property purchases, employment data, tax returns, bank accounts and loans.

In addition, new agreements with countries around the world – including Switzerland – are highlighting cases of tax evasion and making it harder for people to hide their income and wealth by moving it overseas.

This has led to over 400 criminal convictions for tax evasion from 2011 – 2012; but for some, this is not enough.

The public opinion

Whilst the gap had fallen steadily over the past half-decade, many experts are still not convinced the Government is doing enough to catch criminals and close loopholes.

General Secretary of the Public and Commercial Services union Mark Serwotka has stated the figures underestimate the true tax gap, and the ministers’ claims that officials are clamping down on evaders whilst cutting staff are fabricated.

“We think this seriously underestimates the extent of uncollected tax – our research shows our public finances miss out on more than £120 billion a year.”

“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” he has said.

Shadow exchequer secretary Shabana Mahmood has noted: “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.

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