HMRC Measuring Tax Gaps: 2020 report

09 July 2020

HMRC has published its ‘Measuring Tax Gaps: 2020 edition’ report, which discusses the tax gap for 2018-19. The tax gap relates to the amount of tax that should theoretically have been paid to HMRC as opposed to the tax that has actually been paid.

The tax gap for 2018-19 was estimated at 4.7%, which translates to approximately £31 billion, in terms of cash. The report highlights the fact that HMRC collected 95.3% of all the tax due under the law in 2018-19. The tax gap appears to be continually decreasing, as it has fallen from 7.5% in 2015-16 to arrive at 4.7% in 2018-19, which is its lowest percentage rate.

There is some additional information in relation to the wealthy tax gap, which has never been included in any of the previous tax gap reports. This is because HMRC wanted to be more transparent in its approach to wealthy taxpayers, and to enhance its understanding of wealthy non-compliance.

The report demonstrates that the majority of taxpayers aim to get their tax correct and to pay accordingly, however, there are still many who find the processes relating to this too complex, and avoidable mistakes resulted in lost revenue figures of over £8.5 billion in 2018-19. This emphasises how important HMRC’s launch of Making Tax Digital (MTD) was in April 2019.

The aim of MTD is to reduce the tax gap that is caused by avoidable mistakes. 1.4 million businesses have now signed up to MTD, which dictates that businesses with a taxable turnover above the VAT threshold must use digital record keeping tools and submit their VAT return data direct from those records using MTD-compatible software. What this means is that there are less errors, and that companies are able to see, in close to real time, how their finances are looking.

HMRC is the only revenue authority in the world that monitors and subsequently publishes the tax gap information, to cover both direct and indirect taxes every year. The rationale behind providing the information is so that HMRC can be as transparent as possible in its work.

The calculations behind the tax gap are a complicated series of measurements and estimates, and are subject to revision. This is because of the continued availability of more up-to-date data and improvements to analysis. Estimates adhere to the Code of Practice for Official Statistics, which ensures objectivity and integrity.

With the tax gap being the lowest it has ever been, this shows that HMRC’s efforts to support the health of the tax system overall have not been in vain, and that it is now much easier for customers to pay the correct tax, and at the correct time.


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