UK Inquiry Tracker

Tackling the tax gap

Public Accounts Committee Closed Inquiry

Opened: 27 Jul 2020 Closed: 9 Nov 2020 Parliament page

The “tax gap” is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. HMRC relies heavily on taxpayers - individuals and organisations - reporting their finances and paying their taxes in line with the rules. In the last financial … Read more The “tax gap” is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. HMRC relies heavily on taxpayers - individuals and organisations - reporting their finances and paying their taxes in line with the rules. In the last financial year, 2018-19, it collected 90% of the tax owed through this “voluntary compliance” and payment of tax. Inevitably some taxpayers make mistakes, others choose not to comply fully, and some cannot pay because of insolvency. Taxpayers can genuinely interpret tax rules differently from HMRC - or construct artificial arrangements to avoid tax. In 2018-19, HMRC reported a new record tax revenue of £627.9 billion - an increase of £22.1 billion (3.6%) on the year before. But the tax gap, of tax owed “by the book” but not paid, was £31 billion or 4.7% of the total tax owed – though this is down from a peak tax gap of 7.2% in 2014. The state of the economy, how many people in are in self-employment or employed, and the perceived fairness of tax policy - all these and other factors can affect how many voluntarily pay completely the right tax. Tax administrators like HMRC can increase tax revenue by encouraging “voluntary compliance”, but also of course by stopping non-compliance. Keeping the tax gap low is always a challenge because taxpayers continually change their behaviour to exploit “opportunities” in the tax system. The NAO report “Tackling the tax gap” published 22 July 2020 found that HMRC’s work to tackle non-compliance is offering good value for money. HMRC has successfully reduced the tax gap by targeting the factors underpinning non-compliant behaviour - which recently included a series of mass-marketed tax avoidance schemes. But the NAO also found that HMRC has not extended these successes to the cases where taxpayers are bending the rules, or don’t take reasonable care they’re paying the right tax, and there are questions about the focus and resource HMRC dedicates to tackling the tax gap across big business, SMEs and individuals. In September, the Committee will question senior Government officials on how effectively HMRC is tackling the tax gap. If you have evidence on the issues raised above, please submit it here by Thursday 27 August. Show less

6 Recommendations

14 Conclusions

1 Report

1 Oral session

2 Letters

1 Event

Activity timeline 5 events

21 Jun
2021

Correspondence

Correspondence from Jim Harra, Chief Executive and First Permanent Secretary, re Consequential impacts on historical tax gap estimates from…

4 Feb
2021

Report published

Treasury minutes: Government response to the Committee of Public Accounts on the Twentieth report from Session 2019-21

3 Nov
2020

Correspondence

Correspondence to HM Revenue and Customs on the Tackling the tax gap report, dated 22 October 2020

16 Oct
2020

Report published

Twentieth Report - Tackling the tax gap

7 Sep
2020

Oral evidence

Tackling the tax gap

Oral evidence sessions 1 session

7 Sep 2020

View on parliament.uk

Tackling the tax gap

Beth Russell · Her Majesty's Treasury Jim Harra · HMRC Penny Ciniewicz · HMRC

Reports 1 report · click to expand

Title	HC No.	Published	Items	Response
Twentieth Report - Tackling the tax gap	HC 650	16 Oct 2020	20	Responded

Recommendations & Conclusions

20 results

2 Recommendation Not Addressed

Twentieth Report - Tackling the ta…

HMRC does not know the relative size of tax gaps in the four nations of...

HMRC does not know the relative size of tax gaps in the four nations of the UK or across different industries. HMRC already publishes breakdowns of the tax gap by taxpayer group, tax type and behaviour. However, HMRC does not … Read more

Government Response

The government's response discusses funding decisions for the Towns Fund and Levelling Up Fund, providing no comment on HMRC's ability to estimate tax gaps in the four UK nations.

HM Treasury

Tackling the tax gap

Activity timeline 5 events

Oral evidence sessions 1 session

Reports 1 report · click to expand

Recommendations & Conclusions

HMRC does not know the relative size of tax gaps in the four nations of...

In addition, HMRC does not publish any tax gap analysis for different types of industry.

HMRC does not include sophisticated and undesirable tax planning by the wealthy and large businesses...

Although HMRC has yet to see the full effects of COVID-19 on taxpayer compliance, it...

It is not clear that Making Tax Digital will help reduce the tax gap or...

HMRC’s plans to tackle the part of the tax gap attributable to small businesses are...

On the basis of a Report by the Comptroller and Auditor General, we took evidence...

HMRC measures the additional amount it generates by tackling tax avoidance, evasion and non-compliance, known...

HMRC publishes a breakdown of the tax gap by taxpayer group, tax type and behaviour.16...

It also transpired, when we questioned the Department about the size of the tax gap...

HMRC’s estimate of the tax gap includes both non-compliance with the letter of the law,...

HMRC’s tax gap does not capture the ‘policy gap’, which HMRC characterised as the tax...

The COVID-19 pandemic may increase the risks of non-payment of taxes and more people may...

During the pandemic, HMRC told us that it had to redeploy its resources from frontline...

HMRC explained to us that its overall approach to ensuring taxpayers’ compliance with the tax...

HMRC is implementing an ambitious initiative, Making Tax Digital, to help tackle error and failure...

We questioned the Department about the effectiveness of Making Tax Digital in closing the tax...

We also received written evidence from the Chartered Institute of Taxation, which highlighted the findings...

Small businesses accounted for the largest share of the tax gap in 2018–19.42 The tax...

We asked HMRC whether it is doing enough to tackle small businesses that operate in...

Government Response AI assessment · 19 of 6 classified

Correspondence 2 letters