The UK tax gap in 2015-16 is estimated to be £34 billion, according to a report by HMRC. This is 6pc of total tax in theory. Divided by behaviour, the taxman puts the largest single cause down to ‘failure to take reasonable care’ (£6.1bn), compared with legal interpretations (£6bn), evasion (£5.2bn) and crime (£5.1bn).
The report, Measuring tax gaps 2017 edition, by HM Revenue and Customs says: “Organised criminal gangs undertake coordinated and systematic attacks on the tax system. This includes smuggling goods such as alcohol or tobacco, VAT repayment fraud and VAT Missing Trader Intra-Community (MTIC) fraud.”
As for ‘customer group’, who’s behind the gap, almost half of the tax gap can be attributed to small and medium-sized enterprises, according to HMRC.
The tobacco tax gap driven by the illicit market in cigarettes and hand-rolling tobacco is estimated to be £2.5 billion in 2016-17. Of this, £1.9 billion was lost in tobacco duties and a further £0.6 billion in VAT. Overall, this is increase of £100m on 2015/16, despite a decline in the level of UK tax-paid consumption of tobacco. The illicit tobacco market is now estimated to make up around 15pc of overall tobacco consumption in the UK, increasing from 8pc in 2014/15 and 13pc in 2015/16.
At the retail trade body the Association of Convenience Stores (ACS) chief executive James Lowman said: “The illicit trade in tobacco harms legitimate retailers trading in communities across the UK. We believe that local enforcement authorities should be given more powers to deal with those who supply and sell illicit goods, including the power to remove alcohol licences from offenders. These figures show a significant improvement in tackling the illicit trade in alcohol over the last year, but the problem of illicit alcohol has not been solved and can still have a detrimental impact on local communities. We believe that the recently implemented Alcohol Wholesaler Registration Scheme will take further steps to reduce the illicit alcohol trade, and urge retailers who suspect that illicit goods are being sold in their area to contact HMRC.”
The hidden economy tax gap has been revised down by £2.7 billion, to £3.5bn, and error is said to be behind £3.3 billion of the gap.
To read the 94-page document in full visit https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/655097/HMRC-measuring-tax-gaps-2017.pdf.
