HMRC’s tax gap does not capture the ‘policy gap’, which HMRC characterised as the tax loss that is not due, but which might be due if the tax rules could be tightened up. HMRC confirmed to us that there is more “taxable capacity” in multinationals than the 17 Qq 19, 35 18 Q 36; National Audit Office, HM Revenue & Customs: Departmental Overview 2019, slide 6 19 Qq 37–38 20 Q 68 21 Q 20 22 Q 31; C&AG’s Report, Figure 1 23 Q 31 12 Tackling the tax gap current law ensures.24 We questioned the Department about the extent to which its tax gap estimates underestimate the true scale of non-compliance, particularly in relation to the wealthy individuals and multinational companies, who tend to have the most capacity to arrange their financial affairs to avoid paying their taxes in a way that does not fall into the scope of HMRC’s tax gap estimate. HMRC confirmed that the wealthy individuals and large businesses are the taxpayer groups with the most capacity to partake in “sophisticated tax planning”. HMRC records such tax planning arrangements in its estimate of the tax gap where they are, in its view, non-compliant because they are deemed to be a form of tax avoidance or because HMRC deems them to be incorrect interpretations of the tax laws. But any sophisticated tax planning that is effective in legally achieving its objectives, will not be part of the tax gap no matter how undesirable it is from a policy point of view. If HMRC measured, in addition to the compliance gap, how much tax is not paid as a result of effective, legal tax planning, that however from a policy point of view is undesirable, it would produce another figure.25 24 Q 31 25 Q 32 Tackling the tax gap 13 2 HMRC’s plans to tackle the tax gap The impact of COVID-19 on taxpayers’ compliance