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HMRC closes the ‘tax gap’

The difference between the amount of tax that should in theory be collected by HMRC and what actually is collected – known as the ‘tax gap’ – has fallen by £4 billion.

The amount of tax that went uncollected in 2009-10 was estimated to be £35bn, HMRC has said. That represents 7.9% of all tax, compared with 8.1% the previous year, and is the lowest gap since 2004-05. According to HMRC, this is at “the lower end of the range of countries who publish their tax gaps.”

The annual amounts of tax lost to deliberate evasion are relatively small. Of the £14.5bn of direct taxes (income tax, national insurance and capital gains tax) not collected, £1.3bn was attributed to "ghosts", who are people who fail to declare their taxable income, while some £1.8bn was attributed to moonlighters who fail to declare income from a second job.

£5.8bn of lost income tax was due to inaccurate self-assessment returns, but VAT is the tax with the biggest shortfall. An estimated £11.4bn – nearly 14% – of VAT went uncollected in 2009-10. That meant 13.8% of the total amount of VAT due was not collected in 2009-10.

Exchequer Secretary, David Gauke MP said: “Although these numbers show continued progress by HMRC in reducing the tax gap, there is no room for complacency. Just in the last few weeks we have challenged offshore tax evaders, closed tax avoidance loopholes and created a new HMRC unit to ensure that the wealthier members of society pay their way. We will continue to take action to prevent a minority of rule breakers dodging their responsibility to pay the right tax at the right time.”