The UK is famous for having not having an anti-avoidance tax law, which in turn is increasing the tax gap. There is a shortfall between the tax that needs to be paid, and the amount that’s actually paid in. That’s the heart of the tax gap definition, and more people are beginning to wonder if the Government will be able to make up this shortfall anytime soon.
But what is tax evasion? For most, they imagine some sort of wealthy banker skipping out on paying “his fair share”. Yet the definition is a lot broader that that: it’s taxes lost when a person or a company fails to declare the income they know is taxable on purpose. Companies also get in hot water when they knowingly claim expenses that aren’t allowed.
The Public and Commercial Services Union estimates that the tax gap was around 119 billion pounds in 2013-14, but is climbing wit every day.
HMRC ignores this figure entirely, quoting their own number of 22.3 billion for tax evasion. This still falls short of the 73.4 billion pound loss the PCS estimates with the same time period.
Tax avoidance is another piece of the puzzle. Unlike tax evasion, tax avoidance is where people simply arrange thins to pay as little tax as they legally can get away with. Although this is legal, it costs the economy over 20 billion pounds in a single year.
Although HMRC is clearly concerned about these issues, it doesn’t look like there’s going to be any chance of making things right for a while. In June of this year, the agency closed all of the centers that were tasked with answering tax queries and assistance needs. While it’s a move to save costs, it was hardly well received by the public. 340 staff walked out in protest of a potential tax office closing, ending the presence in the county completely. The workers that remained after HMRC slashed 8,000 jobs worried about having to take on longer hours so the agency could avoid hiring people. Being made redundant is no one’s idea of a good time!
The austerity measures in effect have a negative hold on these policies, but only time will tell as to what HMRC will ultimately do. At this point, we know for certain that both tax evasion and tax avoidance will be taken a lot more seriously than they were in the past, as the economy struggles to find more revenue for expanded programs.