HMRC confirms tax gap estimate is worth £31bn

The tax gap estimate for 2018/19 is 4.7% of all tax liabilities, a total worth £31bn, HMRC has confirmed.

Continuing a long-term downward trend, HMRC stated that the tax gap has fallen from 7.5% in the tax year 2005/06, and having recorded 4.7% in 2018/19, the latest tax gap estimate is its lowest recorded rate.

The tax gap is the difference between tax that should be paid and what is actually paid, and HMRC revealed that it collected £628bn in tax revenue in 2018/19.

More than 95% of the tax due was paid in the 2018/19 tax year, which HMRC suggested was the result of sustained efforts to support the overall health of the tax administration system and make it as easy as possible for taxpayers to pay the right tax at the right time.

Commenting on the figures, AJ Bell senior analyst, Tom Selby, said: “Although HMRC has been successful in reducing the ‘tax gap’ to record lows, a financial black hole of £31bn remains eye-watering by any standards.

“To put that in context, the missing cash roughly equates to the entire budget of the Department for Transport and BEIS in 2018/19 combined. In reality of course there will always be a discrepancy between the amount of tax the Revenue expects to receive and the amount it rakes in each year.

“Businesses that become insolvent and so by definition can’t pay the tax they owe, for example, will represent part of the gap, while human error accounts for £3.1bn of missing tax receipts. There will also be people in the so-called ‘hidden economy’ who simply do not declare their income to HMRC.

“With COVID-19 placing a huge strain on public finances, HMRC will be under even greater pressure to close the UK tax gap in 2020/21 and beyond.”

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