HMRC said the gap of around £36bn ($44bn, €40.2bn) represented 6.5% of theoretical tax liabilities, down from 6.9% in the 2013-14 financial year and 8.3% 10 years ago.
The tax office said its success in reducing the tax gap was helped by its continuing efforts to close the net on offshore hidden wealth. HMRC said it had brought in over £2.5bn more from offshore disclosures and other offshore tax evasion initiatives since 2010.
“By investing £1.8bn since 2010 in boosting HMRC compliance capabilities, we’ve brought our tax gap down to its lowest ever level. And to make it even easier for people to pay the right tax in the future, we’ve invested £1.3bn in new digital tools,” said Jane Ellison, the financial secretary to the Treasury.
HMRC said that if the tax gap had remained at the 2005-06 level of 8.3%, it would have grown to £47bn and the country would have been £11bn a year poorer.
George Bull, a senior tax partner at auditing firm RSM, said the latest HMRC figures also reveal that the hidden economy, evasion and criminal attacks are believed to cost the UK around £16.2bn per year.
“That’s an astonishing 45% of the tax gap,” he said.
James Hender, head of private wealth at Saffery Champness, said the continued decline in the gap caused by tax avoidance was further evidence that serial tax avoiders, and the systems they use, are fast dying out.
“HMRC has implemented a series of policies and tools which are already yielding results. Significant sums have now been recouped via powers like APNs and we have seen the new General Anti-Abuse Rule take effect, with prosecutions expected to begin fairly soon," he said.
“Structures that enable aggressive tax avoidance, therefore, just don’t work in practice and the reality is that the vast majority of individuals pay their tax honestly,” Hender added.
The government said it has invested an additional £1.8bn to tackle tax evasion, avoidance and non-compliance since 2010. This included action to clamp down on the organised crime gangs behind the illicit trade in tobacco and alcohol, increasing resourcing on compliance, and an extra £1.3bn to transform HMRC into one of the most advanced tax administrations in the world.
“Over the years, many people have expressed concern that no government has been as tough as it might have been in clamping down on tax evasion and related behaviours. We therefore welcome the statement from the newly reorganised and newly resourced HMRC that they will be redoubling their efforts in this area by relentlessly pursuing those who engage in tax evasion, aggressive avoidance and organised crime,” Bull said.
HMRC claimed its digital transformation was also having a big impact on making it easier for people to pay the right amount of tax.
“In particular, the introduction of Real Time Information for the Pay As You Earn (PAYE) system has led to more accurate recording of information on payroll taxes, and the shift to VAT online has helped bring the VAT gap in 2014-15 to its lowest level of £12.7bn.”
According to HMRC’s chief executive Jon Thompson, the figures show HMRC had successfully maintained a downward pressure on the tax gap in 2014-15 while collecting record revenues though the data shows the gap has levelled out in recent years.
In the 2014-15 tax year, HMRC collected record revenues of almost £518bn, up almost £12bn on the previous year, as a result both of a growing economy and greater efforts to clamp down on tax evasion and fraud.
“But if we are to ensure a fairer and more effective tax system, and more money for public services, we must keep up the pressure on the tax gap by relentlessly pursuing the small minority who seek to cheat their taxes through evasion, aggressive avoidance and organised crime,” Thompson said.