UK tax gap rises to £34bn in the last year

The total of uncollected VAT and income revenue by HM Revenue and Customs (HMRC) rose by £1 billion in the last 12 months to an eye-watering total of £34 billion.

The £34 billion ‘tax gap’ – the difference between what HMRC is actually owed and what it physically collects – has been calculated by the National Audit Office (NAO).

Over two-fifths of last year’s tax shortfall amounted to unpaid income tax, while uncollected VAT accounted for more than a third (36 per cent).

Small and medium-sized enterprises (SMEs) were accused of being the worst offenders, failing to pay £15.1 billion of owed tax.

The NAO said £7.2 billion was lost to HMRC through a combination of tax avoidance and tax evasion. Tax avoidance remains legal, but HMRC believes there are borderline cases out there where people avoid paying tax that it would otherwise have reasonably expected to recoup.

Tax evasion on the other hand, which involves fraud or deliberate concealment, is wholly illegal. Another £5.9 billion was lost to the ‘hidden economy’, where workers accept cash-in-hand payment for their services.

In addition, tax errors and human carelessness also cost the tax authority a whopping £7.1 billion.

The NAO’s official report confirmed that HMRC is now using information obtained from credit reference agencies in an effort to catch out suspected fraudsters. The data handed over by the credit firms is continually scrutinised to try and catch out those spending beyond their supposed means.

These checks have led to HMRC cutting tax credit overpayments as a consequence of fraud and error to the lowest levels ever, according to the NAO.

However, HMRC’s close relationship with the credit agencies continues to spark accusations of ‘Big Brother’ style tactics from certain quarters.

Dr Gus Hosein, of Privacy International, said: “HMRC is quickly becoming a data behemoth.

“Credit reference agencies hold files on all of us yet we have little or no control over them and usually people don’t even know they exist.

“There is no guarantee what these agencies hold on you is actually accurate. So HMRC could be acting on false information.”

Date published 22 Jul 2015 | Last updated 22 Jul 2015