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Fraud major driver of ‘tax gap’

Posted: September 30, 2014

Almost five times more tax revenue is lost as a result of illegal activity than through tax avoidance.

This is the observation of the Chartered Institute of Taxation of official figures that come from the Government’s annual estimate of the ‘tax gap’.

This is the difference between tax collected and that which, in HMRC’s view, should be collected. The Government estimates the gap at around £34bn a year in 2012-13, creating an estimated shortfall of 6.8% of total tax liabilities.

This total includes an estimated £3.1bn lost to tax avoidance, down from £3.4bn the previous year (that figure itself revised down from the estimate of £4bn published a year ago). However, £5.4bn was lost to criminal attacks, £4.1bn to evasion and £5.9bn to the ‘hidden economy’, a total of £15.4bn from illegal activity.

Patrick Stevens, CIOT Tax Policy Director, commented: “These figures suggest that tax evasion and other illegal activity are costing the Exchequer nearly five times as much as tax avoidance.

“HMRC needs to put more effort into investigating and prosecuting those who seek to evade tax. The Government are right to have put extra resources in this direction, as well as tackling artificial and abusive attempts to avoid tax.

“There should be a stronger focus on education and making it easier for people to complete their tax returns.  Additional simplification measures would also help reduce errors as well as making avoidance more difficult.”