Tax gap rises by £5bn to reach £35.8bn
The UK’s 2021/22 total tax gap – the difference between the theoretical tax liabilities and actual receipts – grew by £5bn year-on-year to reach £35.8bn although the tax gap percentage remained consistent at 4.8% of overall liabilities, according to a new report published today.
Commenting on the findings, Dawn Register, head of tax dispute resolution at BDO said: “Small businesses accounted for the largest proportion of the tax gap by customer group, accounting for 56% of the gap in 2021/22. This rose as a percentage of the tax gap in each of the last four years and contrasts with the annual fall in the tax gap attributable to large businesses. This suggests that HMRC might be having more success in tackling non-compliance by larger businesses and could pay more attention to smaller businesses.
“It could also reflect the fact that businesses struggling in the current tough economic climate are cutting corners on their taxes: that may be tempting but it is high-risk.
“By behaviour type, failure to take reasonable care is the number one reason for non-compliance, which equates to a tax gap of £10.7bn. Certainly the government needs to provide HMRC with more resources but taxpayers – and particularly small businesses – need more support. The tax system is currently far too complex. Greater simplification and modernisation could help reduce the numbers of those who are failing to pay the right amount of tax. New techniques such as pre-population of data in tax returns or digital on-screen prompts could help taxpayers reduce careless errors and get their tax right first time.
“There is also the thorny problem of deliberate efforts to avoid tax. If you group the deliberate behaviour types together – evasion, hidden economy and criminal attacks – they account for 30% of the tax gap which equates to another £10.74bn. While HMRC has had some success in reducing the deliberate tax gap, lots more needs to be done. With the launch of HMRC’s updated COP9 Contractual Disclosure Facility last week, those taxpayers who deliberately fail to tell HMRC about all their liabilities would be well advised to come forward voluntarily rather than waiting for HMRC to find them.”