Compliance from large businesses helps drive down UK tax gap

Improved compliance from large businesses in the UK has helped to further reduce the country’s tax gap – the difference between the amount of tax due and collected.

For the 2013-14 financial year, the gap dropped to 6.4 per cent of tax due, representing a continuation of the long-term downward trend.

Significant progress has been made since 2005-06, when the figure stood at 8.4 per cent. Indeed, the reduction in the tax gap over the past ten years equates to an extra £57 billion in cumulative tax. Had the gap remained at its 2009-10 value of 7.3 per cent, HM Revenue and Customs (HMRC) would have collected £14.5 billion less in tax.

Large businesses have been much-maligned for the amount of tax they pay. Recent months have seen the likes of Amazon and Facebook heavily criticised for their tax affairs; Facebook paid just £4,327 in UK corporation tax in 2014, while Amazon’s contribution of £11.9 million over the same period came despite the online retail giant generating sales of £5.3 billion from Britain’s internet shoppers.

However, in this instance, large businesses have been the biggest drivers of change. While small businesses have also played a part, the most significant reduction came from the corporation tax gap, which dropped from 14 per cent in 2005-06 to seven per cent in 2013-14.

The achievement is partly thanks to a government investment of £1 billion since the last Spending Review period to bring about significant change to the way HMRC approaches compliance and tackles the tax gap. HMRC claims this sum has helped to deliver more than £100 billion in additional compliance revenues over the Spending Review period ending 2015-16.

Furthermore, chancellor George Osborne used this summer’s Budget to unveil a range of new measures – including another £800 million of investment over the current parliament – designed to strengthen HMRC’s ability to clamp down on evasion, slash avoidance and boost voluntary compliance. These measures will see the taxman use data in identifying and tackling tax risks.

Closing the tax gap helped HMRC bring in more than £500 billion for the public pocket during 2013-14. Of this sum, compliance yield accounted for £23.9 billion – money that would otherwise have been lost altogether to the exchequer.

Financial secretary to the Treasury David Gauke noted that the UK has one of the lowest tax gaps in the world, and that the government is determined to close it even further.

“There is understandable anger when individuals or companies are perceived not to be contributing their fair share, but we can reassure the public that the proportion going unpaid is low and this government is dedicated to bringing it down further,” he insisted.

Edward Troup, HMRC’s second permanent secretary and tax assurance commissioner, added: “The long-term downward trend shows that our approach to non-compliance is delivering solid and sustained progress.

“We are committed to reducing the tax gap further and bringing in more money to fund vital public services. We are continuously looking for new ways to improve compliance and tackle non-compliance, whether by helping individuals do the right thing or by cracking down on offshore tax evasion by the wealthy or tax avoidance by multinationals.”

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