HMRC to try ‘everything’ to close tax gap

HM Revenue and Customs says it will do “everything” in its power to keep closing the tax gap – the difference between the tax that should be collected, in theory, and what actually comes in to HMRC.

Releasing its latest figures, the Revenue showed the tax gap for 2009-10 is estimated to be 7.9% of liabilities – equating to £35billion, compared with 8.1% of liabilities in 2008-09.

The progress in reducing the tax gap, a target set in the Comprehensive Spending Review, is being seen by both tax advisors and officials as a sign that HMRC’s compliance initiatives are getting through.

In fact, the department’s revenue from compliance activity since 2005 has almost doubled to £14billion, reflecting the wider target in the CSR to raise £7bn a year by 2014-15. 

But in commending staff for their efforts, HMRC’s top taxman suggested that the work was far from over: “HMRC staff have worked very hard to deliver these figures and we are going to do everything we can to achieve even more,” said Dave Hartnett, HMRC permanent secretary.

Meanwhile David Gauke MP, exchequer secretary to the Treasury, spoke of “no room for complacency” from the tax authority. He pointed to offshore tax evaders, people exploiting tax avoidance loopholes and the wealthy (caught by the 50p tax rate) as those who the Revenue had to challenge in recent weeks.

However according to the figures, it is tax evasion and other illegal activities that are chiefly responsible for the tax gap, with their cost to the Exchequer being three times as much as tax avoidance. Making up the gap are taxpayer error and carelessness, which account for £6bn a year.

The Chartered Institute of Taxation reflected: “[The institute] has long argued that HMRC needs to put more effort into investigating and prosecuting those who seek to evade tax. We support recent announcements of additional resources in this direction.”