{"id":53478,"date":"2020-10-16T06:14:15","date_gmt":"2020-10-16T05:14:15","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=53478"},"modified":"2020-10-16T06:14:15","modified_gmt":"2020-10-16T05:14:15","slug":"the-tax-gap-why-hmrc-has-always-seriously-underestimated-it","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2020\/10\/16\/the-tax-gap-why-hmrc-has-always-seriously-underestimated-it\/","title":{"rendered":"The tax gap: why HMRC has always seriously underestimated it"},"content":{"rendered":"<p>The Public Accounts Committee has published a new report on HM Revenue and Custom\u2019s tax gap estimates this morning. As I will note \u00a0in a separate post, they are deeply critical, but not wholly for the same reasons that I am.<\/p>\n<p>One issue that the PAC did not pick up on was that HMRC has admitted that their whole model for estimating the tax gap is flawed. I call that a big deal. I address the issue in this video, made before I saw the PAC report:<\/p>\n<p><iframe loading=\"lazy\" title=\"The UK Tax Gap\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/GU8qITzqXHw?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<p>In summary, the case is a simple one, and one I have long made. HMRC has used a US model for estimating the tax gap. So, they sample some tax returns and find errors and then extrapolate that error rate across all the tax returns that they get.<\/p>\n<p>The model works in the USA because everyone has to submit a tax return.<\/p>\n<p>Only about a third of tax payers in the U.K. have to submit tax returns. And HMRC make the absurd assumption that those who do not submit tax returns - whether they are individuals, or the very large number (almost the majority) of companies that\u00a0do not do so - make no mistakes in their returns as the have no income to declare.<\/p>\n<p>That assumption makes no sense at all. In fact, not requiring returns is \u00a0 \u00a0a mechanism perfectly designed to help the evader and is bound to increase the tax gap.<\/p>\n<p>The assumption HMRC has used by adopting a US model does not work then.<\/p>\n<p>And that is why I have always suggested that there is very strong evidence that HMRC has substantially under-estimated the tax gap. I think it may be three times their own estimate, which is implausibly small and so persistently stated that its credibility is very low.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Public Accounts Committee has published a new report on HM Revenue and Custom\u2019s tax gap estimates this morning. As I will note \u00a0in a<br \/><a class=\"moretag\" href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2020\/10\/16\/the-tax-gap-why-hmrc-has-always-seriously-underestimated-it\/\"><em> Read the full article&#8230;<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14,107,10,33,55,50,97,194],"tags":[],"class_list":["post-53478","post","type-post","status-publish","format-standard","hentry","category-corruption","category-hmrc","category-tax-avoidance","category-tax-compliance","category-tax-evasion","category-tax-gap","category-tax-justice","category-youtube"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/53478","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=53478"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/53478\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=53478"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=53478"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=53478"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}