42 Billion Pounds Missing In UK Taxes

September 17, 2010 Taxation in UK

Day 62Nearly 9 percent of taxes due to the UK HM Revenue and Customs last year were not paid out, due to underpayments, tax evasion and fraud.

In 2009 the UK’s tax gap, the difference between total taxes owed and the taxes collected, grew by GBP 4 billion to a total of GBP 42 billion, the highest amount since the year 2005. The figure was revealed in Measuring Tax Gaps 2010, a new report by the HM Revenue and Custom’s (HMRC) released on September 16th. The HMRC is already embroiled in scandal surrounding internal difficulties which have led to errors in payments from up to 24 million UK tax payers, with the latest news only serving to further increase criticisms of internal inefficiency.

The report shows that collections of indirect taxes experienced a GBP 19 billion shortfall in 2009, equivalent to approximately 12.8 percent of the total indirect tax amount due. Gaps in VAT collections alone amounted to GBP 15.2 billion, marking them as the biggest individual source of the tax gap. The tax shortfall in direct taxes (like income tax, national insurance contributions and capital gains tax) was approximately GBP 14.5 billion, representing a 5.4 percent underpayment. Corporate tax collections saw non-payment levels of 13.9 percent of the total owed, representing nearly GBP 6.9 billion in underpayments, nearly half of which is thought to be due to deliberate tax evasion or fraud.

Outside of VAT non-payment, individuals who inaccurately declare their personal incomes were the second biggest tax gap source, representing s total of GBP 5.8 billion of non-payments. Further, taxpayers who fail to declare any of their incomes made up an extra GBP 1.3 billion of the national tax shortfall, while tax payers with undeclared second jobs led to underpayments of GBP 1.8 billion.

David Gauke, the Exchequer Secretary, commented on the latest figures, saying: “The tax gap number is staggering. This government is committed to taking the necessary action to bring it down – by taking steps to reduce tax avoidance and evasion, including by the richest people in our society.”

Photo by AdamWilcox