Will Tax Gap Increase in the UK in the Financial Year 2021 - 2022?
A quick answer is "yes it will". HMRC released its annual data On September 16, which estimates the difference between the total tax payable and the amount actually paid. The £ 35 billion amount for 2019/20 is equivalent to 5.3% of the tax payable, which is slightly higher than the 5% payable in 2018/19.
The College of Taxation notes that while the estimated tax gap has decreased in percentage terms over time, it has remained the same in real terms. The latest data shows a slight percentage increase, mainly due to the expected increase in the VAT deficit.
The VAT gap is mainly measured by top-down comparing tax revenue to estimated tax liability based on consumer spending data. Table with the tax gap for 2019/20 by type of tax according to HMRC. When looking at the tax gap by customer group, small businesses are the largest group. The amazing figure hidden in the report is that business taxpayers are estimated to pay only 77.5% of the expected amount on self-disclosure (less than £ 4.3bn).
It should be noted, however, that HMRC's methodology for assessing the self-reported income tax gap is calculated from the bottom up. It is based on requirements (which ICAEW members say they rarely see in practice) combined with the operational results of compliance activities.
By reporting the numbers by type of behavior, the HMRC breaks what the ICAEW considers criminal behavior into evasion, criminal assault, and clandestine economics (all of which are summarized in Table 3 below). Among them, they account for almost 40% of the financial gap.
The persistent lack of reasonable prudence explains around 19% of the tax gap. The ICAEW notes that the estimates do not reflect the estimated number of taxpayers represented by professional agents, making it difficult to assess the agents' role in reducing that number. In contrast, the tax gap due to tax evasion narrowed to 4% of the total, suggesting that HMRC's efforts to reduce tax evasion have paid off.