I am well aware that ministers and HMRC's senior management like to say my criticism of their tax gap figure is misplaced. After all they say, admitting to £35bn of missing tax is a big deal, so how could they possibly have got it wrong?
Well, the detail shows why. I searched their report for a key word. It was offshore. It comes up once, on page 45 where they say by way of introduction:
By matching data supplied by third parties to HMRC records, it has been possible to produce an estimate of the tax gap relating to income and capital gains of individuals taxed through PAYE but who do not receive SA returns. The income covered would not have been earned from employment and therefore the associated tax liability was not recovered under the PAYE system. As these individuals did not receive SA returns, the income and gains were also not reported through this means and thus additional liability was due.
This is the way in which they estimate the total impact of the hidden economy - of which offshore is, by definition, a part.
So you then turn to table 8.8 to see how much they think they lose to offshore and there's the number in all its glory:
Offshore bank interest - estimated tax gap - £3 million
Now the UK has just claimed it has signed a deal with Switzerland - just one, albeit significant tax haven - which they claim will recover £5 billion of tax. And then there was the £3bn they claimed they'd get in Liechtenstein. And that's before we build in the Crown Dependencies and Cayman, the BVI and so on and on and on.
But in the tax gap report they say the total loss from offshore is £3 million a year. OK, they extrapolate that - but put it ion context, they say the loss from undeclared rental income is 47 times higher and from UK interest is 22 times higher.
Who are they kidding?
This data is so obviously wrong it takes seconds to realise the deficiencies and gross under estimates in it. But they put it out as if it's authoritative and then dismiss criticism of it as if it is absurd they could be wrong. And yet they glaringly obviously are.
No wonder I stick by my estimate of the tax gap. And so should everyone else.
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It would be interesting to know who was put to work on this report, Richard, and who subsequently proofed it and the approved it for publication. My experience is that relatively junior people do the donkey work, people with too many other things to do check it, and so on. So I’m not surprised that what’s stated contradicts other figures already in the public domain. Good for you for taking the time to expose yet more flaws.
There are more to come Ivan
Every time I look at this stuff I realise how shoddy it is and what gall ministers have to keep telling me I am wrong on this issue
Tim Worstall has beaten me to this in his blog.. but “an estimate of the tax gap relating to income and capital gains of individuals taxed through PAYE but who do not receive SA returns” shouldn’t be treated as an estimate of the total tax gap related to offshore money. Because it’s not. As I understand it, tax returns are routinely requested from PAYE earners with incomes over £100k, and many below that probably request one for other reasons (e.g. pension relief etc) I don’t know how many do.. but the point is that HMRC are looking at a certain group of people, and probably not a group with massive offshore investments in the grand scheme of things.
Does it mean that they have got their sums right about offshore investments? Obviously not, but it does mean it’s incorrect to compare them to the figures quoted re. Switzerland and Liechtenstein.. because HMRC aren’t claiming to have covered all of that in the sums that get them to their £3m.
But that’s a massive leap of faith on your part
I quoted their section on the hidden economy which includes the only reference to offshore which they say is the basis of their estimate and you and the inevitably wrong Worstall say somehow I’ve got it all wrong and I should read in data and evidence that isn’t there? Now why should I do that and on what basis do you do so because there’s no evidence to think I should in the report
But what really amuses me is this. You guys on the right spend your whole time saying HMRC are wrong except when it comes toi supporting them in saying the tax gap is less than it really is
Do you honestly think that lends you any credibility at all on this issue?
Steady. Firstly, I’m not one of the guys on the right.. I know you don’t believe me, but I’m just a different kind of lefty. Secondly, I don’t think for a moment that HMRC have got their numbers right.
I’m just saying that I think you’ve misinterpreted what the £3m figure actually represents.. not that it’s right, or that your figure is wrong. In this instance, the two are not mutually exclusive.
On the tax gap in general, whilst I recognise there is usually bias in the way people interpret data, I don’t see it as a left/right issue. It’s about the facts and, where there are none available, how we best estimate things. It only gets political when we get into what should/shouldn’t be done. I believe that all legally due tax should be pursued, and where the law leads to inappropriate outcomes it should be changed (and that is where it gets most political).
I disagree with some of your thinking, but believe there are significant elements which are worthy of ‘official’ investigation and, quite probably, legislative changes to remove weaknesses and inequities in the system. As someone who recognises a civic duty to pay what the elected government says I should pay, even where I think the law is wrong, I’m narked at the fact that there are a lot of people who don’t.
For example, I think your figures related to companies which don’t file accounts/returns are over-egged.. BUT I think that there’s definitely a lot of tax there which we should be going after. If we do that then we will find the real number and whether you or I were right about it is irrelevant.
OK fair enough
But art least I explain all my logic – HMRC never do
Or when they do – like this – it’s wildly and obviously out
It just shows HM Revenue & Customs are not the body to estimate the Tax Gap.
By the way where Lee T gets his information that Tax Returns are routinely sent to PAYE earners over £100k is just not my experience, quite the opposite..
On both points, agreed
http://www.hmrc.gov.uk/sa/need-tax-return.htm
That’s where my information comes from. The actual rules about who is required to complete a tax return.
If people earning £100k+ under PAYE are not being asked to complete a tax return then that’s a serious system problem for HMRC. They know who is earning £100k through PAYE, and so they should be sending returns as a standard automatic process.
If this process was failing for significant numbers of people, I expect we’d have heard about it by now.
The responsibility doesn’t lie with HMRC to send people tax returns.
Each individual is responsible for determining whether or not they need to complete a return and to do so in good time.
If returns aren’t being made, it’s not HMRC’s fault. It’s the individual’s fault. That’s why there are penalties for failing to notify (in other words, failing to make a return). Such penalties can’t be avoided by saying “Well, you didn’t ask”…
Oh come on – let’s not be naive here
HMRC have the job of collecting tax including that from tax evaders
This isn’t an honesty box system or even the church collection….
Geearkay is working on the basis that “it’s all your fault” – the same as a council that hands out parking fines to visitors after repaving the road and not repainting the yellow lines. In theory my younger son, with a taxable income of less than £1000 pa can be fined for not completing a tax return to show he owes no tax even though my local tax office told me that he did not need to do so. However when HMRC gets it wrong, the taxpayer gets hassle instead of compensation.
Getting back to square one – HMRC’s estimate for 99% of tax evasion through offshore accounts comes within their figure for incorrect returns under self-assessment. The £3m for those covered by PAYE who don’t fill in a self-assessment form is made up of a large number of small amounts; most of which fall into the category of “not worth pursuing” as the cost of tracing them would exceed the tax due.