Tax fraud amounts to half of the estimated UK tax gap

Tax fraud in the UK totals around £16bn each year, which equates to about half of the estimated tax gap, according to a recent National Audit Office (NAO) report.

In 2014/15 HM Revenue and Customs (HMRC) recorded £26.6bn in additional revenue from all its compliance work, including work to tackle tax fraud but also to deal with other aspects of the tax gap; most notably error and tax avoidance.

However, the NAO revealed HMRC only has partial data on how much of the total yield is derived from its work to counter tax fraud.

The NAO estimates that between 30 and 40 per cent of total compliance yield is generated by HMRC’s tax fraud activities, but this is only based on HMRC’s partial evidence.

According to HMRC the two biggest groups – smaller businesses and criminals – make up 17 of the 21 biggest tax fraud risks in the country. Nine of these 17 risks involve medium-sized, small or micro firms.

Amyas Morse, head of the NAO, said: “HMRC loses £16bn a year due to tax fraud, but reducing these losses is not straightforward.

“HMRC has met its targets to raise more tax revenue in the short-term. It now needs to consider whether its overall strategy is designed to achieve the best long-term outcomes.

“We will be evaluating HMRC’s performance in tackling different types of tax fraud in more depth.

“As we do so, we will be looking for further improvements in the way HMRC uses data and analysis to understand the effect of its actions in both the long and short-term.”

An HMRC spokesman confirmed the tax authority is “cracking down on tax avoidance and evasion” using a “wide range of civil and criminal interventions to collect and protect revenue for public services”.

He added that the department is “steadily reducing the tax gap to its lowest-ever level”.

“Last year, HMRC collected and protected a record £26bn in revenues from compliance activities, contributing towards the UK’s highest ever tax take of £518bn.

“Additional funding and new measures contained in the Summer Budget and Autumn Statement are allowing HMRC to crack down further on the hidden economy, get tougher on offshore evasion, and increase the number of prosecutions of wealthy tax evaders.

“The small minority who persist in dragging their feet, hiding or helping others to hide their money and assets at home or abroad, now face increased financial penalties and risk criminal prosecution.”

Date published 18 Dec 2015 | Last updated 18 Dec 2015