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HMRC tax gap ‘statistics’ should be taken with pinch of salt

HMRC published (on 16 September 2021) that the UK ‘tax gap’ has grown to £35 billion, which is 5.3% of tax liabilities.

The UK ‘tax gap’ is not a hard figure, merely an estimate of how much money HMRC thinks ought to have paid in a year which did not arrive in Treasury coffers.

Cormac Marum, our Head of Tax Advisory, says the only hard figure in the report is how much money HMRC did actually collect. For 2019/20, effectively the last year BC (i.e. before Covid), the figure was £633.4 billion.

To put that figure into some context, it represents an average of:

  • £1,735,000,000 each and every single day during that year and
  • £9,755 for each and every man, woman and child in the country (based on a UK population of 65 million).

“The rest of the figures in the report are estimates or, to describe them more accurately, pure speculation,” says Cormac.

The ‘tax gap’ claimed at 5.3% represents just over £35 billion, which it is thought should have arrived to the Treasury. “It translates into an additional £545 which should (according to these speculative numbers) have been paid by every man, woman and child in the country (i.e. just under £1.50 a day over the whole year),” says Cormac.

Despite the reams and reams of tax legislation devoted to the topic, the report claims that only £1.5 billion (or just over 4% of the speculative shortfall) was attributed to tax avoidance. Far more of the ‘tax gap’ is down apparently to:

  • Innocent errors in taxpayers struggling to apply the labyrinthine UK tax code
  • Failure to take reasonable care in applying those rules, and
  • Operations in the hidden economy, which, by definition, are not reported.

“Who knows the motivation behind all these pie-in-the-sky numbers produced as official statistics,” says Cormac. “But they ought surely to be taken with a high degree of scepticism.”



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