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September 21, 2021

BDO comment on latest tax gap figures

By Zoya Malik

Commenting on the publication of the latest tax gap figures for 2019/20, Dawn Register, Head of Tax Dispute Resolution at BDO said:

“HMRC has made progress over the last 15 years in reducing the tax gap – the difference between the amount of tax that should be paid versus what is actually collected – but the latest figures show the first rise in six years which should be a cause for concern. Given the dire need to fill the Treasury coffers, we expect this will be a catalyst for increased HMRC interventions.

“HMRC describes the overall tax gap of £35bn, equivalent to 5.3% of expected tax take, as ‘low’. But £13.75bn – almost 40% of the total – is being drained out of the system through tax evasion, criminal attacks and activities in the hidden economy. This should be a number one priority area for HMRC, the public demand will be to collect taxes from those ‘cheating the system’.

“What’s also striking is the £3.7bn lost through error – around 10% of the total. The complexity of the tax system is undoubtedly a factor, but some taxpayers may also be making simple errors or not taking sufficient care when submitting returns.

“What these numbers from 19-20 don’t show is the impact of the COVID-19 support monies paid out by the Government. HMRC paused a significant amount of compliance activity as the pandemic took hold, while the furlough and SEISS schemes proved attractive to fraudsters. As a result, we predict an increased tax gap if we look at the true picture today. The statistics for 20/21 will be particularly interesting and are likely to drive an increase in targeted investigations by HMRC.”

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