The EU published new VAT gap data last week for all 28 member states.
The UK summary is here (click the image for a bigger version):
The EU think that in 2012 the UK VAT gap was 10.4% of total potential VAT payable. At 2012 exchange rates the value was £13,428 million (£13.4 billion). The EU says this is very close to the UK estimate.
There's just one problem with that claim: the latest UK estimate of the VAT gap is for 2012-13 (so near enough the same period) and is for a gap of 10.9% at a cost of £12.4 billion. I don't think £13.4 billion is close to £12.4 billion: it is £1 billion.
One of these estimates is better than the other. I know which I am inclined to believe because it was not prepared by the tax authority publishing it, and that's precisely why I say HMRC should not be responsible for monitoring the tax gap.
Note: Updated at 14.30 on 27 October because an incorrect exchange rate was used in the first version
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What is the difference in methodologies between the two estimates?
Supposedly similar
Hang on, aren’t there two different differences here?
The first is the EU 10.4% vs the UK 10.9%. Interesting to know what the difference in methodology actually is, although given we’re in a world of rough estimates, it doesn’t seem terribly significant.
The second is the different figures you cite for total VAT revenues. But this can’t really be a difference, can it, given the total UK VAT revenues in Sterling is a known number? Isn’t it just a result of you applying a spot exchange rate when, presumably, the EU use a blended rate?
Oh come on, the rate hardly changed in the year
And I used the HMRC blended rate anyway – not a spot rate
How convenient to use different bases for your two claims – (sorry; couldn’t resist) UK reckons it’s losing 10.9%, EU reckons it’s losing 10.4%. So if the amounts are different in the opposite directions (£12.4bn vs £14.3bn respectively) then the “100%” must be very different? I genuinely can’t see the story hear; different people use different percentages for different years… or are you saying that their calculations for the same year are different, in which case how can the increasing percentage reduce the absolute figure?
Key points – is the UK gap still falling (absolute, important), and is it better or worse than elsewhere in Europe (comparative; less important)?
The key point is the absolute sum for an almost identical period
It is better than many, but not nearly as good as is possible
Why are you comparing an “almost” identical period when you can compare identical periods?
The EU say the VAT gap was 10.4% for 2012. HMRC say that the VAT gap was 10.4% for the year 2011-2012, which is the same reporting period as the EU have used.
By comparing the EU’s 2012 number to HMRC’s 2012-13 number you are not comparing apples with apples.
You also seem to use a dubious FX spot rate – the average rate till 31 March 2012 rather than the average spot rate to year end – which rather dramatically reduces the numbers you are claiming.
No, 2012 is 2012
And I used a blended rate for 2012
The EU 2012 data corresponds to the HMRC 2011-12 data. You are simply claiming that the EU data corresponds to 2012-13 HMRC data because it’s “almost” the same period.
Backing the exchange rate out from your numbers:
14297/16557 = 0.8635
Which looks suspiciously like the average rate to 31.03.12 given by HMRC. I.e. the year to date average up to the end of March 2012. If you had used the whole year average rate given by HMRC, of 0.811, you get a number of 13427, much lower than the number you claim.
It looks to me like you have gone and cherry-picked numbers and time frames to suit your point, when in reality the EU and HMRC data ties up very closely – especially in terms of the percentage tax gap.
You are right: I have made a rate error, and apologise
I noted the wrong figure in error: we all make them
The correct figure should be 1.233
I have corrected the blog
And 2011/12 is not 2012: 2012/13 is the closest available
I am also not worried about the % – I am worried about absolutes