Mind the “tax” gap - it could get bigger with Brexit | KPMG | UK
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Mind the “tax” gap - it could get bigger with Brexit, says KPMG

Mind the “tax” gap - it could get bigger with Brexit

Comments on the tax gap analysis published yesterday by HMRC.


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Commenting on the tax gap analysis published yesterday by HMRC, Michelle Quest, head of tax, pensions and legal services at KPMG in the UK, said:

“It’s clearly reassuring to see the headline tax gap figures in this year’s report showing a reduction from 6.9% (£37bn) in 2013-14 to 6.5% (£36bn) in 2014-15. 

“Looking at the corporation tax gap, the figures show it has fallen by 44% overall since 2005/06. However, this year’s report shows the tax gap rose to 7.6% compared to 7.2% in 2013-14. Both SMEs and big business have contributed to the increase with the corporation tax gap rising 0.3% and 0.2% respectively.  

“Nevertheless, it’s encouraging to see tax avoidance numbers reducing by another £0.5bn - now £2.2bn for 2014-15 having been £5bn and higher not too long ago. This suggests the statistics are starting to reflect changes in corporate behaviour with avoidance of inheritance tax, national insurance contributions and capital gains tax contributing more to the overall avoidance figures than corporate tax avoidance. 

“Despite the media suggesting otherwise, the attitudes of big business towards tax behaviours have changed over the past decade and the reality is that tax avoidance activity is restricted to a small minority of corporate offenders.  

“Headline figures show the Pay As You Earn (PAYE) tax gap is much reduced and HMRC highlight that Real Time Information is likely to have made a significant contribution. Better quality data and increased compliance are also likely to have contributed to the reduction from £4bn in 2013-14 to £2.8bn in 2014-15. However, the implementation of HMRC’s Making Tax Digital proposals represents a daunting change for many tax payers. The resources required for the initial switch will be a significant challenge for many business and this could adversely impact the tax figures in the short-term.”

Robin Walduck, head of international tax and treasury at KPMG in the UK, added:

“While these figures don’t yet reflect any impact of the EU referendum result, we may see a knock-on impact of Brexit in future years. HMRC have championed that the VAT gap is at its lowest level in this year’s report, but 10.3% is still a relatively high gap for a tax, particularly when you compare it to corporation tax which is 7.6% and PAYE at 5.2%.

“There may be challenges ahead for HMRC in keeping the indirect tax gap under control as we expect the UK’s decision to leave the EU will have a disproportionate impact on indirect taxes (such as VAT) as well as tariffs and customs duties. As these areas of tax become more complex for businesses to understand, this will no doubt affect how easy they are to administer. 

“This increased complexity could lead to a short term impact on the tax gap for these taxes as business (and HMRC) get to grips with the impact of Brexit. We may also see more examples of the tax gap needing to be re-calculated (as it was this year in relation to 2013/14 data) as a result of Brexit driving an evolving interpretation and application of the tax code.”


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About KPMG 

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff.  The UK firm recorded a revenue of £1.96 billion in the year ended September 2015. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 174,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such. 



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