Despite attempts to close the UK’s massive ‘tax gap’, the latest figures show that tax avoidance is costing the economy some £35 billion a year.
The findings form part of HM Revenue & Customs’ (HMRC) new report into the effectiveness of its anti-tax avoidance measures.
The ‘tax gap’ is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid.
While the latest statistics show that the gap has, in fact, fallen, there is still much more work to be done. In total, 94.4 per cent of all tax due was paid in 2017/18. This is compared to 2005/06, the last available figures, when the tax gap stood at 91.6 per cent.
The biggest shortfall, the data shows, comes from Income Tax, National Insurance Contributions (NICs) and Capital Gains Tax, at a combined £12.9 billion.
The Corporation Tax gap, however, has fallen from 12.5 per cent in 2005/06 to 8.1 per cent in 2017/18.
HMRC has used the figures to highlight the necessity of an all-digital tax system. The shift towards complete digitisation started earlier this year with the introduction of Making Tax Digital (MTD) for VAT, which the Revenue hopes will help collect an additional £3 billion in VAT which goes missing each year.
Under the new regime, almost all VAT-registered businesses earning above the VAT threshold (currently £85,000) will need to keep their records digitally and submit their VAT returns using MTD-compatible software.
It is believed that MTD will be adapted to include more taxes, such as Corporation Tax and Income Tax, from as early as 2021.
Commenting on the figures, an HMRC spokesperson said: “Since 2010, the Government has invested over £2 billion in HMRC to tackle evasion, avoidance and non-compliance and announced over 100 measures to tackle non-compliance in the tax system and aggressive tax planning.”