The UK Tax Gap

The UK tax gap – the money owed to the taxpayer which Her Majesty’s Revenue and Customs (HMRC) fails to collect – stands at £35bn a year. This is more than our entire annual spend on police, fire services, courts, and prisons combined.

This briefing makes the case for closing the tax gap. Cutting back at HMRC is a false economy. The Government should commit to providing the investment necessary for HMRC to restore the number of audits and routine compliance work to (at least) 2016 levels. Restoring HMRC’s capacity would require an increase in spending of at least £300m.

Government should also set a target for reducing the tax gap. This currently stands at 5.3% of the total tax bill. The Government should aim to reduce this to 2%. To do this there should be a boost of investment and a clear plan based on an in-depth analysis of where increasing tax compliance staff, investigations, and other resources could yield the greatest returns on investment into HMRC.

At a time when Britain is looking to build back better, make the transition to net zero, pay for an ageing population and level up its economy, we can’t afford a tax gap of this scale. Tackling it will bring in cash whilst ensuring fair play and reinforcing the importance of the rule of law. If done properly, it will restore HMRC to its position as a tax body that other countries want to emulate, as well as making voters feel confident that the system works for them. Putting forward a clear plan to tackle the tax gap will put the UK at the forefront of the fight for fair taxation systems. Altogether, tackling the tax gap will help bring about a stronger, fairer and richer Britain.