Wealthy are targeted by HMRC over ‘tax gap’ shortfall

Wealthy taxpayers are being targeted by the taxman just days after it announced a tax gap of £32 billion in the UK economy.

HM Revenue & Customs (HMRC) is chasing those with an income of more than £200,000 or assets of more than £2 million, in any of the past three years. The authority is clamping down on those who have failed to file a tax return, the regulator’s Wealthy External Forum has announced.

They are in the process of sending reminder letters to wealthy taxpayers who have yet to file tax returns for 2018-19, 2019-20 and 2021.

The latest HMRC data on the tax gap – the difference between the total amount of tax expected and that which is actually paid – was published last week.

What are the causes of the tax gap?

Possible explanations for the missing funds include taxpayers making simple errors, criminal attacks, non-payment and evasion.

In 2020 to 2021, the tax gap for wealthy taxpayers was estimated at four per cent of liabilities, equivalent to £1.2 billion.

The tax authority said a failure to take reasonable care, criminal attacks, non-payment and evasion were among the main reasons for the tax gap in 2020-21 in terms of behaviour.

Half of the tax gap shortfall was blamed on SMEs, at about £15.6 billion, with VAT accounting for the second biggest total of £9 billion.

Where did the money go?

Around £12.7 billion was lost through income tax and National Insurance and Capital Gains Tax, while fraud cost around £2 billion.

Jonathan Athow, HMRC’s Director General for Customer Strategy and Tax Design, said: “The vast majority of taxpayers and businesses paid the correct amount of tax owed. We want to help everyone to get their tax right as the revenue we raise helps fund our vital public services.”

The estimate for the 2020 to 2021 tax gap is the best assessment based on the evidence available at this time. There is some uncertainty for the tax gap estimates for the first year of the pandemic and estimates could be subject to revisions in future years.

For help and advice on tax and related matters, please contact our team today.

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