As the Times notes:
Barristers and vets are expected to be the next professionals to come in for scrutiny after HM Revenue & Customs targeted doctors last week.
GPs and consultants, as well as dentists, who have failed to declare additional sources of income are being given the opportunity to come forward in return for a 90% discount on the usual penalties, under the Revenue’s latest “amnesty”, launched on Monday.
According to HMRC the total direct tax gap in the UK is just £25 billion a year. Of this tax evasion is not specified but at maximum it is claimed — assuming all inaccurate self assessment tax returns are evasion and not errors — to not exceed £14.4 billion.
That’s a big number — but is just 5.3% at most of all direct tax to be collected this year.
And that’s utterly implausible. As HMRC admit (page 11) the average VAT gap over the last 7 years as been 13.7% of the gross sum that should have been collected.
VAT is charged on sales. If 13.7% of sales do not have VAT on them that’s the top line that’s not being declared. And it’s very unlikely in that case that anything below the top line will be declared for tax if the tip line is not i.e. the direct tax loss on PAYE on wages self employed profits and corporation tax on profits is also likely to have a tax gap of at least 13.7% of the gross sum due. Actually, it’s likely to be higher still since small business is not liable to VAT — a fact allowed for in the VAT calculation and therefore the rate of loss amongst small unregistered businesses is likely to be even higher still.
So the overall direct tax loss is likely to be at least 13.7% of gross expected revenue — or about £42 billion. The loss on indirect tax would come in at more than £25 billion. Allow for some loss in ‘other revenues’ as well and the tax loss to evasion is in my estimate not less than £70 billion a year.
No wonder tackling the endemic crisis of tax evasion — even amongst the leading professions - is so important.
But in that case why won’t HM Revenue & Customs admit the scale of the problem they’re tackling?
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Maybe just maybe, the problem isn’t as big as the figures you keep peddling on here.
@John Buckles
I used logic
What’s your logic?
Richard,
If I read correctly, you assume that HMRC’s rate of tax evasion on VAT(which in HMRC’s admission seems to be the most evaded tax) can be applied to all other direct and indirect taxes.
Why, logically would that be the case? Why, logically, would the rate of vasion not be lower on taxes other than VAT?
Thank you
If the top line is evaded why will tax be paid on all that is charged against out of stolen funds?
Please use some common sense
Sorry but I completley fail to see the logic of using the same rate for VAT and income tax evasion
Also, John, speaking as someone who advises clients who are the subject of tax investigations, I can tell you that HMRC can and do look at the VAT returns and compare this with what is being declared for the purposes of CT and Income tax. If they can’t be reconciled it’s “game over” for the taxpayer. Only a fool would carry on in this way. I would also hope that whoever prepares their accounts would spot the problem before HMRC got to look at it.
Have I answered your question?
@Ted B
Which I guess shows how little you know about tax and accounting and business
There is a CT equivalent of missing trader fraud?
Isn’t a large part of the VAT gap due to fraud in ABC transactions, with the fraud occurring at B (A sells goods to B with nil VAT, B sells same goods to C with regular VAT, but B never hands over the collected VAT to the tax authority)?
B is typically a shell company, so while it’s likely that CT will also not be paid by it there are no or few other taxes that apply, therefore the VAT gap will be larger than the CT gap.
Note that at least two of A,B and C are typically in different countries, so because of difficulties in getting different tax authorities to work together, it’s possible to perpetuate the VAT fraud for a few years even when B is an ‘honest’ CT payer. This would only increase the size of the VAT gap compared with the direct tax gap.
The typical VAT fraud only lasts for a few months, so there is never an opportunity for a reconciliation between turnover declared for VAT and CT. When it comes, B no longer exists and the people behind it have moved on to another similar scheme.
Measures introduced by the EU per 01/01/10 should make this sort of fraud much harder to commit.
Missing trader fraud has been separately categorised by HMRC
It should not therefore have impact on these conclusions
And since not all businesses are VAT registered the VAT stat is likely to understate direct tax losses in any event
For both reasons your logic does not work in my opinion
Richard
Ah, that should learn me to click on links before enthusiastically tapping reactions….
[…] The only trouble is that is not true. The real level of tax evasion is something like £70 billion a year. […]
[…] The only trouble is that is not true. The real level of tax evasion is something like £70 billion a year. […]
what about the effect of the public sector? this is approx 20% of the workforce and will contribute significant amounts to direct taxes (payroll) with little effect on VAT. There is unlikely to be much of a “tax gap” on these taxes which will dilute the impact of other effects on the Direct Tax %.
I would be surprised if payroll taxes are not avoided by at least 10%. They are, surely, the easiest to avoid. I wonder what the estimates are for the black market.