How to fill the UK tax gap?
On September 16, the HMRC released the figures for the pre=pandemic period of 2019/20. It shows a UK 2bn rise in the estimated tax gap. The reason behind this is the persistent increase in the VAT gap. The annual data evaluates a contrast between the total tax expected to be paid and the amount paid. The figures for the 2019/20 period of UK pound 35bn correspond to 5.3% of tax liabilities – an increase from the previous 5% tax liabilities.
Experts feel that even though the estimated tax gap has reduced over time in percentage, the level remains the same. Yet, the UK tax amount that the large businesses have underpaid has escalated by 15% to a staggering UK pound 6.1 billion for 2019/20. This is up from the UK pound 5.3 billion in 2018/19.
HMRC’s official note
Jim Harra, Chief Executive and First Permanent Secretary of the HMRC, said, “It is encouraging to see such a large proportion of businesses and individuals meeting their tax obligations. We want to help everyone get their tax right, which will help fund our vital public services like the NHS and emergency services.”
Capping the wealthy
Meanwhile, the Budget is coming up this month, and everyone is expecting the Chancellor of the Exchequer to find a possible opportunity to encourage accounts of UK plc. However, while some count on witnessing another half-hearted try to cover up the things, Sir Keir Starmer is expected to vocalise plans to tax the rich.
The plans might include:
Increasing revenues from the capital gains tax.
Inheritance tax.
Even introducing a wealth tax.
But there are secret conversations on reducing the tax gap. Even so, the measures would only be possible if the HMRC were to focus on those who have illegally evaded and avoided tax.
Experts feel the HMRC does want to close the tax gap as the economy slowly comes out of the pandemic. The report claims an estimate of 19% tax gap is due to a failure to take rational action. In comparison, 16% represented disputes over legal interpretation.
The government plans to introduce legislation from April 1, 2022, that would require large businesses to inform HMRC of any ‘uncertain amounts’ included in tax returns. These relate to VAT, corporation tax or income tax that includes sums collected through PAYE. The step aims to end the legal interpretation of the tax gap. However, when large businesses send advance notice to HMRC about the areas, it might lead to disputes.
Meanwhile, accountants keep on pressing how they always advise their clients to pay the correct amount of tax.
Concluding note
HMRC has been taking aggressive steps to investigate wealthy individuals and their tax affairs. However, the Treasury feels that wealthy individuals are getting away with their missing tax. While the pandemic paused the routine audits, the focus is on increasing income from investigations as lockdown ends.
