An odd dispute has broken out between the Local Government Association and HMRC on who is the better tax collector; central, or local government. The LGA claims they collect 97.5% of all council tax due, contrasting this with the Revenues wildly optimistic estimate that they collect 93.25% of all tax owing, which is only true if their ludicrous estimate of the tax gap (which fails to take into account people who don't submit tax returns, of the avoidance of Google, Amazon and Starbucks) is to be believed.
To compound matters, HM Revenue & Customs has had the temerity to say the LGA are wrong. As the BBC has reported:
An HM Revenue and Customs spokesman said: "The LGA have fundamentally misunderstood the nature of the tax gap which is not a measure of tax unpaid.
"In fact HMRC already collects 99% of all taxes and duties which are collectible from a very wide customer base of 60 million taxpayers, increasing our tax take by £1.4bn to £475.6bn in the last year alone. On average we collect £1.3bn a day for the UK."
This is so ludicrous it is almost laughable. First of all the tax gap does include unpaid tax: it always has and so this claim is just straightforwardly incorrect.
Secondly, defining your tax recovery rate as a percentage of the tax you can recover does of course completely miss the point: if you define your recovery rate in proportion to the cash you're paid the answer should of course be 100% (I expect the difference here is bounced cheques).
It really is time the Revenue signed a declaration on their press releases similar to that which all of us have to put on our tax returns, which says:
I declare that the information I have given on this tax return and any supplementary pages is correct and complete to the best of my knowledge and belief.
Non one could have done that in this case.
Hat tip: Matt Sisson
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Richard –
Read the HMRC statement again. It says “the tax gap which is not a measure of tax unpaid”. This is actually a true statement (but HMRC could have clarified by saying “not JUST a measure…”). The tax gap is a measure of tax which has been assessed but not collected, tax which has been insufficiently assessed and tax which has not been assessed at all.
LGA seemed to suggest that HMRC are rubbish at collecting the tax which has been assessed… this is only one aspect of the tax gap. If it were otherwise, then HMRC Inspectors would only be involved in debt management and collection.
I know that your definition of the tax gap differs from HMRCs, but I think it’s also true that your definition disagrees with the LGA if they think it’s just a measure of assessed but uncollected tax. Now, THAT’S ludicrous.
The second part of the HMRC statement says that HMRC collects 99% of the tax THAT IS COLLECTIBLE. Tax is only collectible once it’s been assessed and any appeals finalised. So, what HMRC are saying is that they collect 99% of all taxes which have been self assessed or arise as a result of successful interventions by HMRC and have been agreed by taxpayers or settled by the tribunal/court system. This is also a true statement. (I wish it was 100%, but you can’t have everything. As you observe, cheques do bounce!)
The HMRC release is silent on its view of any tax which might become due in future as a result of its activities. This estimate forms a significant part of the tax gap which LGA ignores.
Critical reading of this statement by HMRC reveals that it hasn’t said anything which is false, although (read in a certain way) it could have been clearer. In the light of this, would you think about reconsidering your response?
First, the tax gap definition HMRC use has always included unpaid tax.We differ on whether that is tax paid late or bad debt, but unpaid tax is in the HMRC definition.
The claim made is about 1% of tax due is eventually bad debt
That is true in the sense that the narrowly define tax due. But the statement is serious misrepresentation of the truth for that reason – and false on the definition of be tax gap
It is no surprise that local government has a higher tax collection rate than HMRC. Local taxes, Council Tax and Business Rates (which I understand they collect but do not keep,) are based on physical immovable property. It can’t be hidden in a tax haven. So it is a far better tax base than capital, wages or transactions.
Richard
Talking of tax returns, wouldn’t it stamp out tax evasion if every one were obliged to file annual tax returns as per the USA and South Africa.
I think so
presumably `unpaid tax` is, er, unpaid?
Yes
But there are timing issues as to when you recognise that, which are disputed
As I keep saying HMRC are an organization not fit for purpose. They are judge and jury in their own case. They are also in complete awe of the Treasury.
No reflection on HMRC staff in general, they are just Lions led by Donkeys.
How long must it be before it is recognized that this Emperor has no clothes?
A good question
And I agree that this is not the fault of the staff who I genuinely think do their very best with limited resources, a lack of direction and too little training in far too many cases
The problem is at the top
We need HMRC to be directly accountable to ministers and we need it to be managed by people who have a commitment to tax and an understanding of what it involves
Youd’ think that would be obvious, wouldn’t you?