It's been revealed that the UK's national accounts for 2009-10 include tax bad debt of £10.9 billion.
I found this interesting. That's because, as regular readers will know, I've been writing about the 'tax gap' since 2006, and pretty much forced this issue onto HMRC's agenda in 2008, as government papers at the time showed. The tax gap is made up of three parts. The first is tax avoidance (£25 billion in my estimate), the second tax evasion (£70 billion in my estimate) and the third tax paid late (£25 million according to HMRC of which they have said about £4 billion a year has been written off on average in previous years. This definition of the gap is not mine by the way: HMRC agree with it, except they ignore tax paid late and recovered in their numeric calculations despite including it in their definitions.
But if they do include bad debt of £10.9 billion then their latest estimates of the tax gap - supposedly for the same year, 2009-10 are even more wildly inaccurate than we thought, because they claim that in total the tax gap is just £35 billion that year. That would mean there was just £24 billion of tax avoided and evaded, and yet as I have shown using World Bank figures for the UK shadow economy, it's implausible that we have a tax evasion gap of less than £70 billion (which so happens to agree with my estimate of the same gap based largely on VAT data). If the HMRC claim on the total tax gap were right tax evasion would be little more than £20 billion - and that's just 3.6% of total overall tax revenues.
No country on earth has a tax evasion rate as low as that. Switzerland is supposedly the cleanest domestic economy on earth and has a shadow economy of 8.5%.
So what this data says is that not only do the national accounts have some surprises in them, but HMRC are lying about the scale of the tax gap. Sorry to use such language, but on this occasion it seems appropriate (and they can always sue me if they wish). But I don't think they will. What this data reveals is that not only have they not previously told the truth on the scale of bad debts HMRC has been suffering, they've also been disguising that data in the figures on the tax gap they have been producing. As I've said all along.
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The problem with estimating the tax gap is that, by definition, you are attempting to measure something that isn’t there. If it was there then there’d be no tax gap. This is a simple truth yet to my knowledge you have never mentioned it once in any of your reports when estimating the tax gap.
The bad debt figure of £10.9bn can only be based on tax assessed. They can’t base it on a figure plucked out of thin air.
Except it is there
The shadow economy is real
So your logic is completely wrong
£10.9bn is tax assessed on income and not paid, so it is not part of the tax gap. In fact if you read the HMRC calcuation, it does not include amount assessed but not paid. The amount owed is also a point in time figure whilst the tax gap is an annual figure, so they should not be added together.
I would imagine that a large amount of this may be from companies that have taxable income in one year but go bankrupt the following year before settling their tax liability. I suppose the same could apply to self employed in ths environment.
You are candidly just making that up
You have no clue
Let’s assume hypothetically that all shadow economy activity was brought out into the open economy, existed transparently and was accordingly taxed. Do you really think its size would remain the same, and thus you could collect all the tax which you think is out there? If you take the size of the shadow economy and call it\ Z and multiply by say 25% to come up with a “tax gap”, do you think Z would stay the same now it is in the open economy? This is not an argument for ignoring tax evasion by the way, it is simply an argument that tax recovered will be far smaller than Z x 25%. After all, one of the main reasons people operate in the shadow economy is to avoid tax, and I doubt people will continue on the same scale with such massively reduced margins.
And I notice you are still calling tax paid late part of the tax gap, without netting off recoveries from previous years.
Why not?
Prices may rise in the real economy as people would still have to pay for many things now subject to evasion
So the price increase may compensate for the loss of activity
But actually and candidly – I don’t care. I have always said we’ll never stop all evasion so your argument is irrelevant. I do condemn your implicit argument that crime is worth tolerating – and I do not believe that is ever acceptable.
So my logic remains 100% reasonable – including on the tax paid late, which is static not flow data
As you say, tax paid late is static not flow so isn’t part of the tax gap. That doesn’t make it any less serious, but just needs to be consider from another way. To take it to extremes, it unpaid tax was £120bn and avoidance/evasion £0, there would be no tax gap, just very bad debt collecting.
As for collecting the debt, surely it isn’t just more debt collector needed but a totally new system, as it seems to be a total shambles.
But you’re wrong again – HMRC say in tat case the tax gap is £120 bn
That was your last comment