Business

Setback for HMRC, as 'tax gap' rises

HMRC building Image copyright Getty Images
Image caption HMRC blamed criminal fraud for the failure to collect more tax

HM Revenue and Customs (HMRC) has announced a rise in the "tax gap" - the difference between the amount of tax it should collect in theory, and the actual total.

In the year to April 2013, the gap rose to £34bn, from £33bn the year before.

The size of the gap rose to 6.8% of the total, after previously falling for seven consecutive years.

HMRC blamed the rise on criminal fraud, and people making mistakes on their tax returns.

The rise comes despite HMRC being put under pressure by the government to raise more money in tax, and being given extra resources to do so.

"These damning figures show that this government is totally failing to tackle tax avoidance and evasion," said Shabana Mahmood, Labour's shadow exchequer secretary to the Treasury.

"According to HMRC's own assessment, the amount of uncollected tax rose again last year and has now gone up by £3bn," she said.

Tax avoidance

It also follows criticism of HMRC from MPs on the Public Accounts Committee (PAC).

The MPs pointed out that the tax gap does not include money lost to the Treasury through aggressive tax avoidance schemes.

In December 2013, the MPs accused HMRC of "losing its nerve" when mounting tax prosecutions against multi-national corporations.

However HMRC said the total lost to the government in 2012/13 had fallen to 6.8%, from 8.5% in 2005/06.

An HMRC spokesman said that the UK had one of the lowest tax gaps in the world.

At the other end of the spectrum, he said that Mexico had a gap of 25%.

Earlier this month HMRC admitted that tens of thousands of tax-payers would have to be sent another statement, after errors on previous tax demands.

Where tax is lost
Tax Amount uncollected
Income Tax, National Insurance and Capital Gains Tax £14.2bn
VAT £12.4bn
Corporation Tax £3.9bn
Excise Duties (alcohol, tobacco, fuel) £2.9bn
Inheritance Tax £0.3bn
Stamp Duty £0.2bn
source: HMRC. Tax year 2012/13

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