I gave evidence to the EU parliament last week on the VAT tax gap.
This morning our parliament has published evidence I submitted to them in May on the same issue. It is available here.
I was one of only two UK academics to submit evidence on this vital issue.
I do sometimes wonder, what do the rest do?
Richard, just wonder about you saying that HMRC doesn’t do anything to estimate the ‘policy gap’ which you correctly describe as resulting from “tax laws granting exemptions, tax liability deferrals or preferential tax rates”. HMRC does publish such estimates for VAT as well as other taxes in its annual ‘Estimated Costs of principal tax reliefs’ publication. For VAT, this came to near £50bn in 2016/17, with the two major components being the cost of zero-rating for Food and for New Dwellings.
How reliable are these numbers?
Why are they not published as part of the tax gap?
How reliable are your estimates of the tax gap? A lot of people would say your 120bn number is less than reliable….
You do understand the difference between the tax gap and the cost of tax relief dictated by government policy, don’t you?
I provided clear evidence of my basis for estimation
HMRC do not
You go and read it and decide
And yes, I do understand what you patronisingly ask. If I did not do you really think the likes of the EU Parliament would ask me to give evidence?
Well, because the tax gap publication is focussed on compliance. It’s true that this doesn’t give a complete picture of what an all-encompassing VAT system with full compliance would yield. But it’s hard to see that an all-encompassing VAT system is in any way a political go-er in the UK. Bearing in mind the vociferous way in which reduced and zero-rates are argued for (e.g. fuel and power, and sanitary products), one wonders who would make any proposal to add VAT to food, to children’s clothing and shoes or indeed new dwellings as these would fall directly on consumers. These are what make up the £50bn above. In addition there are £27bn of exemptions where there might be a more scope for extending standard-rating because the impact in these areas isn’t quite as direct or as large in terms of % increase in price for consumers. HMRC do say that these areas are subject to a high degree of uncertainty in terms of cost. Notably, the estimated cost of the VAT threshold – which is included in the £27bn – is only thought to be £2bn or so. Finally, there’s another £12bn in reliefs or refunds for public bodies but this can probably be ignored as they’re part of a money-go-round so the money were all collected then the bodies in question would just need more direct funding to be able to pay.
But I am asking the question, why is it focussed on compliance? Why aren’t the macro issues also important?
And how can we be sure the micro is right if we do not do the macro?
I’ve seen your tax gap estimate. It takes a few numbers (mostly from HMRC), you make a few assumptions and then multiply a few numbers together to get your “answer”.
You make no attempt to estimate your errors and there is no new data or research in your estimate.
HMRC spend a huge amount of time and money on their tax gap calculation, and if *you* had bothered to read it you would also know they spend a lot of time discussing their error margins.
The EU parliament don’t ask you to give evidence. One or two members of that parliament do. Maybe only Molly Scott Cato. I guess it is obvious enough that you will shill for anyone if they pay you.
You know how estimates are created don’t you?
Richard. In your report to the EU, you say:
“some of the schemes that make compliance by this sector relatively more straightforward such as flat rate schemes are now being withdrawn.”
The flat rate VAT scheme is not being withdrawn.
You’ll probably accuse me of being pedantic.
Fundamentally rewriting the scheme to prevent fraud was a withdrawal of the old scheme
HMRC have not fundamentally rewritten the scheme at all. They introduced one new category of trader in April 2017. Every other aspect of the FRS remains exactly as it was.
Quite why you are so pathologically incapable of admitting mistakes is a mystery.
Because of fraud they had to fundamentally rewrite the rules for many traders to reduce claims that were wholly inappropriate
I was talking in the context of fraud
Hi Richard,
There are a number of reasons why few academics gave evidence. 1) Lack of funding for research in this area so few academics with expertise at this level 2) discouraged by managers – no promotion points, or no direct links to institutional KPIs. 3) exhaustion – average academic working 50 hour weeks, and missing out their holidays to keep up with performance targets 4) curtailment of academic freedom.
https://mronline.org/2018/06/30/willetts-the-conqueror-part-6-academic-freedom/
HE sector is really in the shit.
I know all those issues
Including the exhaustion bit
(2) is also a major issue for many