A Steady Trend in Tax Compliance
The UK’s tax collection agency, HM Revenue and Customs (HMRC), has announced that the country’s unpaid tax amount has continued to remain at a record low of 4.8%.
This revelation comes from the annual publication of the Measuring Tax Gaps report, which estimates the difference between the expected and actual tax payments. Notably, this figure matches last year’s revised estimate, indicating a consistent trend in tax compliance.
Upholding Public Services through Proper Tax Payments
Jonathan Athow, HMRC’s Director General for Customer Strategy and Tax Design, stressed the significance of tax collection in funding essential public services.
He emphasized that it is crucial for everyone to pay their fair share of taxes, ensuring the sustainability of public amenities and infrastructure.
According to Athow, the latest figures demonstrate that the majority of taxpayers and businesses fulfill their tax obligations responsibly.
Long-Term Reduction in the Tax Gap
The Measuring Tax Gaps report, published annually, reveals a notable long-term decrease in the tax gap. This gap represents the difference between expected and collected tax amounts.
Over the years, factors such as errors, insufficient care, tax evasion, and criminal activities have contributed to this gap. Since the 2005-2006 tax year, the tax gap has declined significantly from 7.5% to the current 4.8% in 2021-2022.
Monetary Impact and Contributing Factors
In terms of monetary value, the most recent figures indicate a difference of £36 billion in the 2021-2022 tax year, compared to £31 billion in the previous year.
The tax gap has remained at 4.8% due to an increase in estimated tax liabilities from £643 billion in 2020-2021 to £739 billion in 2021-2022. The report also highlights the composition of the tax gap by different groups and types of tax.
Groups and Types Contributing to the Tax Gap
The report reveals that small businesses represent the largest portion of the tax gap, accounting for 56% (£20.2 billion).
They are followed by criminals, large businesses, and mid-sized businesses, each contributing 11% (£4.1 billion, £3.9 billion, and £3.8 billion, respectively).
Wealthy individuals make up 5% (£1.7 billion), while all other individuals contribute 6% (£2.1 billion) to the overall tax gap.
When examining the types of tax, Income Tax, National Insurance contributions, and Capital Gains Tax collectively make up 35% (£12.7 billion) of the total tax gap. Corporation Tax (CT) now stands as the second-largest component at 30% (£10.6 billion), with revised estimates based on new data.
The Value Added Tax (VAT) gap has shown a consistent downward trend, declining from 14.0% (£11.9 billion) in 2005-2006 to 5.4% (£7.6 billion) currently.
Addressing Behavioral Factors and Enhancing Transparency
The report identifies several behavioral reasons for the tax gap, including failure to take reasonable care (30%), errors (15%), evasion (13%), legal interpretation (12%), criminal attacks (11%), and non-payment (9%).
HMRC values transparency and publishes the report to foster public trust in the tax system.
Transparency informs HMRC’s priorities, enabling focus on areas with the greatest potential for improvement.
Ensuring Accuracy and Integrity in Reporting
It’s worth noting that HMRC’s tax gap estimates are considered official statistics produced in accordance with the Code of Practice for Statistics, guaranteeing objectivity and integrity.
These estimates undergo an annual review to incorporate updated data and methodologies, ensuring the accuracy of the findings.
The Measuring Tax Gaps 2023 report supersedes the 2022 report, initially estimating a 5.1% tax gap but revised to 4.8%.
These reports shape HMRC’s work, emphasizing transparency and providing insight for significant improvements in tax compliance.