This equates to 6.7 per cent of tax due, compared to 7.1 per cent in 2009/10 and comes from a variety of sources, including tax evasion and avoidance, customer error, the hidden economy, criminal attacks and where tax cannot be collected because businesses have become insolvent.
Exchequer Secretary David Gauke MP said: “These tax gap figures show that the vast majority of people and businesses pay the tax they owe on time. Last year £468.9 billion was collected, including £13.9 billion brought in through HMRC’s work policing the rules.
“Every pound of tax that is not collected puts a greater burden on honest taxpayers and public services, so the Government and HMRC will continue to work together to make it harder for individuals and businesses not to pay the taxes that are due.
“We are determined to reduce the tax gap and have made £917 million available to help HMRC tackle avoidance and evasion.”
Lin Homer, HMRC’s Chief Executive, said: “Our determination to support the honest majority and to crack down on evasion, avoidance and fraud have kept downward pressure on the tax gap. We are determined to do more and we are devoting increasing resources to pursuing those who do not pay the tax they owe, while making it easier for people and business to comply with their tax obligations.”
The Treasury made much of its clamp down on tax evasion and avoidance - although technically 'tax avoidance' is still legal, HMRC still counts it among these figures. However, the report differentiated between 'tax avoidance' and 'legitimate tax planning'.
It said: "Tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no commercial purpose other than to produce a tax advantage. It involves operating within the letter but not the spirit of the law. Tax avoidance is not the same as legitimate tax planning.
"Legitimate tax planning involves using tax reliefs for the purpose for which they were intended. For example, claiming tax relief on capital investment, saving in a tax-exempt ISA or saving for retirement by making contributions to a pension scheme are all legitimate forms of tax planning."
The report said that tax avoidance contributed a loss of £5 billion or 16 per cent of the total to HMRC.
The full estimates of the tax gap by behaviour are:
- Criminal attacks: £5 billion
- Hidden economy: £5 billion
- Avoidance: £5 billion
- Evasion: £4 billion
- Legal interpretation: £4 billion
- Non payment: £4 billion
- Failure to take reasonable care: £3 billion
- Error: £2 billion
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Susie Hughes © Shout99 2012