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Money Well Spent?

Mark McLaughlin asks if HMRC should spend so much of taxpayers' precious resources on working out "The Tax Gap".

HMRC published the 'tax gap' figures for 2010/11 recently (see 2010/11 Tax Gap Figures Published).

The 'tax gap' is described by HMRC as the difference between the total revenues collected by HMRC, and the total revenues that it is estimated the tax system should generate. In other words, it is broadly the difference between the amount that HMRC thinks taxpayers should be paying, and the amount they are actually paying.

According to HMRC, the tax gap for 2010/11 was £32 billion, or 6.7% of tax due, compared to 7.1% in 2009/10.

It has seemed to me for some time that HMRC has an unhealthy obsession with the tax gap. It is 'unhealthy' because HMRC is spending valuable time and resources trying to estimate something which cannot be proven with any accuracy. In a recent article in 'Taxation' ('Mind the gap', 9 August 2012), HMRC's Deputy Director, Ed Hagger, estimated the tax gap for 2009/10 at £35 billion, but pointed out that the campaign group Tax Research UK calculated the tax gap at £120 billion.

Such huge differences of opinion on how much the tax gap actually is, surely serve only to illustrate the futility of the whole exercise.

Most people would surely accept that there is probably a very substantial tax gap. I suppose that by measuring the tax gap year by year, it provides HMRC with some sense of perspective about how efficiently they are operating to close the gap.

However, I cannot help thinking that HMRC's time and resources in calculating and monitoring the tax gap could be better spent elsewhere. Planning how they can answer telephone calls more quickly and engaging more call centre staff is one example that springs to mind.

Perhaps there is political value for the Government in pointing out that the tax gap has fallen, which makes the whole exercise worthwhile. Or maybe I'm just getting more cynical in my old age!

Best wishes,

Mark McLaughlin

Managing Editor