HMRC Looks to Narrow the Tax Gap


In recent HaesCooper blog posts, we have commented on the various Government schemes launched to help support businesses through the COVID-19 pandemic. We now want to move on to how the costs of this support will be paid for, and how HMRC are extending their powers so they are able to reduce the UK tax gap and strengthen their fight against UK tax avoiders and tax evaders.

What is the UK ‘Tax Gap’?

The ‘Tax Gap’ is the difference between the tax due to HMRC under the UK’s tax statutes and the actual tax taken by HMRC.

It is difficult to calculate the amount of tax that should be paid to the Government, but HMRC does estimate the tax gap in percentage terms based on their access to internal and external data.

In 2005/2006 – the tax gap percentage was estimated by HMRC to be 7.5%, whereas now it is estimated to be 4.7%. This reduction in the tax gap is as a result of the HMRC’s increased use of their investigatory and collection powers. HMRC also reports that the biggest tax gap is with small businesses, where the gap is estimated to be £13.4 billion, out of an estimated total UK tax gap in excess of a staggering £30 billion!

How is the HMRC narrowing the UK tax gap?

HMRC have announced that their efforts pre-COVID-19 to narrow the UK tax gap will remain a priority, even in the time of the pandemic. HMRC have used several successful methods to reduce the UK tax gap – including compliance investigations that target those business sectors that are considered to under-declare their tax (i.e. cash-based small retailers such as restaurants, market traders and small retailers).

HMRC has also used investigatory actions against UK residents with non-disclosed offshore assets or income, or non-residents with UK assets or income they have not reported to HRMC. This HMRC action is supported by the UK’s cross border agreement with foreign jurisdictions commonly known as ‘tax havens’.

Plea Bargains for Evading Tax

Another method used by HRMC to increase the UK tax take is to offer a plea bargain to taxpayers suspected of evading tax. It is reported in the last tax year HMRC collected nearly £120 million through plea bargain agreements – a 25% uplift from the amount collected during the 2018/2019 tax year.

It is also possible for an individual who has previously undisclosed income or gains to contact HMRC to request a plea bargain agreement. Such an approach to HMRC will avoid criminal prosecution and the ‘naming and shaming’ that goes with such a prosecution. With HMRC’s increase access to UK and offshore data to find tax evasion, it is in an errant taxpayer’s interest to make contact with HMRC for a plea bargain agreement.

How We Can Help

At HaesCooper we can help you deal with HMRC investigations into your tax affairs, or better yet – review your current tax compliance and business records to identify any UK tax issues before HMRC does! Contact us today to find out more.

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