HMRC say “tax gap is closing”

HMRC is continuing its crack down on all forms of tax avoidance, and government statistics show that they are making some serious headway.

The ‘tax gap’ has fallen by £4 billion, from £39 billion in 2008/9 to £35 billion in 2009/10. This has largely been attributed to the VAT rate cut which was in effect for 13 months from Dec 2008.

David Gauke, Secretary for the Exchequer, said that: “Although these numbers show continued progress from HMRC in reducing the tax gap there is no room for complacency. Just recently we have closed various tax avoidance loopholes, created a new unit to focus on the wealthiest individuals in society and challenged those who use offshore bank accounts to evade tax.”

Evasion, which is the use of illegal means to flout tax liabilities, was the cause of about £4 billion in lost tax last year, while avoidance; or the use of legal loopholes to dodge tax, cost HMRC around £5 billion. Outright criminal attacks and differences in legal interpretation were also responsible for large chunks of the tax gap.

HMRC was given £917 million in 2010 to fund its fight against tax avoidance, and is expected to raise at least an extra £7 billion a year by 2014/15. Their secretary for tax, Dave Hartnett said: “the current tax gap is the result of a wide range of issues and the challenges are always changing, these figures show that we are continuing to tackle non-compliance. We have almost doubled compliance revenues since 2005.”

A spokesman for professional body, the Institute of Taxation pointed out figures which show illegal activity costing the exchequer three times more than tax avoidance and stated that they “have long argued that HMRC needs to make a more concerted effort to investigate and prosecute tax evaders. We support the recent announcement of extra resources being put into this area”..

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