HMRC publishes its latest UK Tax Gap estimate

Earlier today HMRC published its 2016/17 UK Tax Gap estimate.

At 5.7% of the estimated total tax due, the gap has flatlined (also 5.7% in 2015/16).

The amount attributed to small business is down from £14.1bn (previously stated as being £15.5bn) in 2015/16 to £13.7bn.

What is the tax gap?

The tax gap seeks to monitor an estimate of the difference between the amount of tax due and that which is actually collected.

It is calculated and produced by HMRC using values, principles and protocols set out in the Code of Practice for Official Statistics.

The UK has one of the lowest tax gaps in the world. Encouragingly, the gap is significantly less than a decade ago.

The key findings

  • There has been a long-term reduction in the overall tax gap, from 7.3% in 2005-06 to the current rate of 5.7%.
  • The Income Tax, National Insurance Contributions and Capital Gains Tax (IT, NICs and CGT) gap is 4.2%.  This is its joint lowest level since 2009-10.
  • From 2005-06 the VAT gap (12.5% to 8.9%) trend has been towards a long-term reduction.
  • Corporation Tax gap has also been on a long-term downward-trend, from 12.4% in 2005-06 to 7.4%.
  • There has also been a steady downward-trend in the avoidance tax gap, from £4.9bn in 2005-06 to £1.7bn.

Avoidance

The avoidance section, found in page 12 of the published report, focuses on Corporation Tax (45%) and payroll taxes (44%).

Income Tax avoidance (and other taxes) is only listed as 3%,with a similar percentage attributable to VAT.

Income tax, NICs and Capital Gains

In 2016-17, the total estimated tax gap for Income Tax, National Insurance Contributions and Capital Gains Tax was £13.5bn. This equates to 4.2% of the estimated total theoretical liabilities.

Of the £13.5bn, £7.0bn is attributable to self-assessment, meaning that the tax gap is 16.4%.

Under avoidance (page 53, published report) the tax gap concerned with measuring personal income taxes ascribed to the hidden economy is estimated at £1.8bn.

Employers and small business

The employer and small business tax gap fell from £1.1bn in 2013-14 to £0.6bn. The main factor for the fall is given as a reduction in non-payment in 2014-15 and 2015-16.

Non-payments increased in 2016-17, but this is from under-declared liabilities due to incorrect returns decreased.

Corporation Tax

The estimated Corporation Tax gap has declined from 12.4% in 2005-06 to 7.4%.

So where is the surprise?

If anything, the report is interesting for the large number areas of no change.

So with the gap figures largely as last year the surprise is there really isn’t any surprise.

Brian Palmer is the tax policy adviser for AAT.

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