Jesse Norman praises HMRC over 'low' tax gap figures, despite criticisms

The new financial secretary to the Treasury has thrown his weight behind HMRC and its latest ‘tax gap’ figures, despite the dataset being widely discredited.

Jesse Norman MP said the UK’s tax gap was ‘remaining low’ thanks to an “effective” HMRC and the department’s “efforts to clamp down on tax evasion and avoidance.”

Aside from differences in interpretation (despite the Treasury minister’s ‘low’ characterisation, the gap widened by £2billion to £35bn in 2017/18), the figures as a whole have been denounced as “laughable”.

'Flawed'

Mainly due to activities that HMRC excludes from the ‘gap’, such as corporate profit-shifting and schemes that exploit legal loopholes, TaxWatch also said that the figures were “flawed.”

Richard Murphy, a tax researcher, used his blog to support the group’s criticisms, made in The Independent, by identifying three areas that he says make HMRC’s methodology “inappropriate” (broadly, the three are; profit-sharing, a trickle-down effect of underpaid VAT and using a limited number of HMRC audits as a foundation).

“The tax gap is reported to be £35bn and there is much trumpeting that at 5.6% of supposed tax yield, this is the lowest claimed figure ever,” said Mr Murphy, seemingly referring to the Treasury minister’s comments.

“And for all the reasons I [have] explained… this is utter nonsense. The real tax gap is in my opinion about £90bn”.

'Disappointed'

The Chartered Institute of Taxation  appears to agree that contrary to the ‘trumpeting,’ the government is actually “likely to be disappointed” with HMRC’s annual figures.

Firstly, and despite acknowledging that estimating the gap is a “complex and necessarily imprecise”, the CIOT points out that the figures show efforts to reduce tax owed but uncollected to have “stalled.”

“A sustained fall of three quarters in the share of the potential tax take being lost to avoidance since 2005 is significant and a tribute to the actions of successive governments”, the institute said.

“[But] these figures suggest that tax evasion and other illegal activity are costing the exchequer seven times as much as tax avoidance.”

'Ever more complex'

As a result, the Revenue must focus more of its resources on investigating and prosecuting individuals who seek to evade tax, according to CIOT president Glyn Fullelove.

He added: “The numbers in this report illustrate the complexity of the tax system. Nearly £10bn of the tax gap relates to taxpayers inadvertently not getting things right, through what HMRC categorise as error or a failure to take reasonable care. As some other parts of the tax gap have fallen these have remained stubbornly high.

“[Therefore]…HMRC should focus on customer service as a direct way to help large numbers of ordinary taxpayers who find themselves confronted by ever more complex tax law and increasing compliance obligations.”