HMRC have released their 2018 report on the tax gap, which looks at the gap in the 2016-17 year. The gap is estimated to be £33 billion, which is 5.7 percent of the total theoretical tax liabilities, and is at the 2015-16 level, although the cash figure was lower in 2015-16 (£32 billion). There has been a long term reduction in the overall tax gap over recent years, and the key findings are in line with what has been seen in previous years. The majority of the tax gap relates to income tax, NICs, capital gains tax and VAT, with failure to take reasonable care being the main taxpayer behaviour contributing to the gap.
Some more of the report’s key findings include:
- Small businesses are by far the largest contributor to the tax gap, making up 41 percent;
- The Corporation Tax gap has been on a long-term downward trend, from 12.4 percent in 2005-06 to 7.4 percent in 2016-17;
- The Corporation Tax section of the report now gives information on how the net gap is calculated across the Large Business (LB), Mid-size Business (MSB) and Small Business segments. What this shows is that LB is very effective at stopping the tax gap (nearly 75 percent of the gross gap is recovered in compliance yield). However, the MSB and Small Business teams are less effective, with 33 percent and 7 percent compliance yields respectively;
- The tax gap for income tax, National Insurance Contributions and Capital Gains Tax (IT, NICs and CGT) was 4.2 percent in 2016-17 - its joint lowest level since 2009-10;
- There has been a long-term reduction between 2005-06 and 2016-17 for the VAT (Value Added Tax) gap (12.5 percent to 8.9 percent); and
- There has been a steady downward trend in the avoidance tax gap, from £4.9 billion in 2005-06 to £1.7 billion in 2016-17.
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