Who are the biggest culprits when it comes to not paying tax? As accountants we often hear that it’s the ‘tax avoiders’ who are costing this country dear and putting extra burdens on the rest of the tax- complying population, but according to the latest figures released by HM Revenues & Customs, people who minimise the amount of tax they pay legally – the so-called ‘tax avoiders’ – are not in fact causing the problem that many mistakenly accuse them of. The true culprit according to HMRC is illegal activity.
HM Revenues & Customs’ official figures show that tax revenue lost in the UK due to illegal activity is almost six-times the figure lost through tax avoidance. This illegal activity cost the country £15.7bn in lost tax revenue in 2013-14: avoidance on the other hand cost the country only £2.7bn. So what type of ‘illegal activity’ is HMRC referring to? Well, of the £15.7bn; criminal attacks cost the nation £5.1bn, tax evasion cost £4.4bn, and the UK’s ‘hidden economy’ cost us £6.2bn.
Speaking about the official report, the Chartered Institute of Taxation (CIoT) said:
“Tax evasion and other illegal activity are costing the Exchequer nearly six times as much as tax avoidance.”
“HMRC needs to put more effort into investigating and prosecuting those who seek to evade tax… [and] the government are right to have put extra resources in this direction.”
There were criticisms last year from tax experts who severely criticised the Revenue’s decision to calculate avoidance solely on avoidance ‘disclosed under DOTAS. However, the CIoT has now added another omission to the list of complaints:
“HMRC’s avoidance figure does not include a lot of what gets described as avoidance in the newspapers, especially in relation to multinational businesses. This is because, as HMRC puts it, it ‘is the result not of frustrating UK law but of exploiting the international tax framework’. This is the kind of activity governments are rightly working to tackle internationally.”
Criticisms are one thing, but constructive advice is another entirely. So what sort of activity does the
CIoT believe HMRC should be targeting? The CIoT pinpointed the billions of public funds still being lost thanks to errors and pure carelessness by taxpayers.
John Cullinane, of the CIoT, said:
“More than £6bn a year [is being lost to taxpayer errors]. HMRC are still not doing enough in this area. There should be a stronger focus on education and making it easier for people to complete their.”
“Additional simplification measures would also help reduce errors as well as making avoidance more difficult,” he added.
According to HMRC, the difference between tax collected and tax which is yet to be collected – better known as the tax gap – is approximately £34bn a year; creating a potential tax liability shortfall of 6.4 per cent:
“34 billion is a large amount of tax not to be collecting, but while the headline figure is unchanged it is a slightly lower share of the total tax HMRC think is due,” Mr Cullinane added.
“The figure still compares well to international jurisdictions. The most recent estimate of the tax gap in the United States, for example, puts the tax gap there at more than 14 per cent of total tax liabilities, more than double the percentage share in the UK.”
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