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UK tax gap down to 5.6%

HMRC collected 94.4% of all the tax due under UK law in 2017 to 2018. Overall, the tax gap has fallen from 7.2% since 2005 to 2006.The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid.

Financial Secretary to the Treasury Jesse Norman MP said: The UK’s low tax gap underlines both how the vast majority of people are paying the correct amount of tax, and how effective HM Revenue and Customs has been in its efforts to clamp down on tax evasion and avoidance.”

Findings from the Measuring tax gaps report also show:

  • the duty-only excise tax gap has reduced from 8.4 % in 2005 to 2006, to 5.1% in 2017 to 2018
  • the Corporation Tax gap has reduced from 12.5% in 2005 to 2006, to 8.1% in 2017 to 2018

Avoidable mistakes are costing the Exchequer over £9.9bn a year. Some £3bn of this is attributable to VAT alone, which underlines the importance of the action HMRC has been taking with Making Tax Digital.

HMRC launched Making Tax Digital in April this year for VAT-registered businesses, with turnover above the VAT threshold, requiring them to keep digital records and submit their VAT return using compatible software. So far, over 400,000 businesses have joined the service.

HMRC expects this service to reduce tax lost due to avoidable errors by ensuring businesses make fewer mistakes, thanks to the improved accuracy that digital records provide and the fact that information is sent directly from those records to HMRC, helping to eliminate transposition errors.

HMRC said that it had secured and protected more than £200bn in extra tax since 2010 that would otherwise have gone unpaid as a result of actions to tackle tax evasion, tax avoidance, and non-compliance.

Since 2010, the government has invested over £2bn in HMRC to tackle evasion, avoidance and non-compliance and announced over 100 measures to tackle non-compliance in the tax system and aggressive tax planning.

The tax gap methodology has also been intensively reviewed and given a clean bill of health by the International Monetary Fund and scrutinised by the National Audit Office. HMRC is the only revenue authority in the world that measures and publishes the tax gap every year - 2019 marks the tenth year it has published the report.

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