Tax gap estimated at £40bn per year

Fraud, administrative error, non-payment and artificial avoidance schemes are costing HMRC an estimated £40 billion a year.

According to a new study from the Revenue, the annual tax gap – the amount that goes uncollected – is approximately 8% of the UK’s total tax liability.

The department’s figures suggest that underpaid personal taxes, including levies on income and capital gains, amounted to £15.8 billion during 2007/08, while the VAT shortfall was around £11.5 billion and the country’s largest 800 companies paid £3.3 billion less tax than was necessary.

HMRC say the latest estimated gap is £8 billion lower than that in 2002/03, and the taxman aims to further reduce the shortfall by a minimum of £4 billion by 2011.

‘All developed economies have a tax gap and the UK’s is at the lower end of the range for those countries that publish an estimate,’ said a Revenue spokesperson.

‘We have made significant progress in key areas such as [combating] offshore evasion and the use of tax havens. Our anti-avoidance work has protected the UK from losses of around £12 billion since 2004.’

HMRC’s document, Measuring Tax Gaps 2009, follows a report from Parliament’s Committee of Public Accounts, which criticised the Revenue for failing to invest in its recovery of tax debts and for a tax take £22 billion lower in 2008-09 than in the previous year. 

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