HMRC said that the fall in the “tax gap” – the difference between the tax HMRC considers should be payable and the sum actually collected – was largely due to a decline in VAT receipts. However, despite the fall, law firm McGrigors said HMRC should still be concerned about how much is slipping through the net.
Heather Self, director at McGrigors said: “This is a huge amount of tax that HMRC is not collecting. At a time when taxes are rising, HMRC is under considerable pressure to maximise the tax take and ensure the system is fair.”
However, Self did also point out that HMRC and the government have done much to try to stamp out tax evasion and aggressive avoidance, investing an additional £900m into the task in October following the Spending Review.
Indeed, Adam Craggs, tax partner at London law firm RPC said HMRC’s aggressive approach to tax evasion is starting to pay off.
“The taxman was given £900m in funding last year to help improve tax compliance and if this money is spent on high profile prosecutions it may be that the tax gap will fall further over the next few years,” said Craggs.
In view of the recent debate surrounding the 50% tax rate for higher earners, Craggs believes removing this would in help bring the shortfall down even further.
“A quick, cheap way to reduce the tax gap further would be to reduce the 50% tax rate, as the higher rate is encouraging a lot of high earners to structure their affairs so as to minimise their tax liability,” he said.
“A reduction in the top rate might bring them back into the fold, increasing overall tax revenue and reducing HMRC’s compliance costs.”
