HMRC criticised over £32bn ‘tax gap’ estimate

theguardian.com:

HMRC was accused on Thursday of underestimating the tax gap – the difference between the expected income for the exchequer and actual receipts – after official figures showed it was unchanged during the first year of the pandemic.

The Revenue said there was a 5.1% shortfall worth £32bn in the 2020-21 financial year, the same as the period before the pandemic took effect. It said fraud accounted for £2bn of the total – despite widespread concerns that tens of billions of pounds in government pandemic spending was lost to fraud.

Richard Murphy, a tax expert, said the assessment of tax losses to the exchequer was “half-hearted” and a more comprehensive review would probably have found losses from the hidden economy were much higher. “The report found there was virtually no money that went missing during the pandemic. That cannot be an accurate reading of the situation,” he said.

The tax authority said a failure to take reasonable care, criminal attacks, non-payment and evasion were among the main reasons for the tax gap in 2020-21 in terms of behaviour.

Small businesses were responsible for nearly half of the tax gap, at about £15.6bn, according to HMRC’s data, with VAT underpayments accounting for the second biggest chunk of the total at £9bn. Losses from income tax, national insurance contributions and capital gains tax accounted for the biggest loss of £12.7bn in 2020-21, while fraud only accounted for £2bn.

Murphy said: “The chance that just £2bn is lost a year to tax evaders – out of £635bn paid – is utterly ludicrous. That’s a 0.3% evasion rate,” he said.

The total tax due to be paid fell from £672bn in 2019-20 to £635bn in 2020-21.

Rachael Griffin, a tax and financial planning expert at the investment firm Quilter, said