HM Revenue & Customs released its data concerning the ‘tax gap’ for the 2020 to 2021 tax year. The non-ministerial department said that the estimated ‘tax gap’ – defined as the difference between the total amount of tax expected to be paid and the total amount of tax actually paid during the financial year – was 5.1%. 

This percentage is the second lowest the HMRC has published since it began providing tax-gap estimates from the 2005 to 2006 financial year. It is also the exact percentage figure provided for the previous tax year. 

Some tax experts, however, have questioned this figure, suggesting that the Revenue has downplayed the accurate scale of fraud during the 2020 to 2021 tax year, potentially amounting to tens of billions of pounds. 

The “best assessment based on the evidence”, or “half-hearted”? 

In announcing the tax-gap figure, HMRC said that “the majority of taxpayers pay the tax that is owed.” It said that in monetary terms, the tax gap for the 2020 to 2021 financial year was £32 billion, which actually represented a £2 billion fall in the monetary value of the tax gap compared to the £34 billion recorded for the 2019 to 2020 period. 

The tax body also described its estimate for 2020 to 2021 as “the best assessment based on the evidence available at the time. There is some uncertainty for the tax gap estimates for the first year of the pandemic, and estimates could be subject to revisions in future years.” 

However, the fact that the 2020 to 2021 period saw extensive government spending focused on supporting the population through the pandemic contributed to scepticism about the data among some observers. 

One such person to express doubt was tax expert Richard Murphy, who The Guardian quoted as calling the assessment “half-hearted”. He suggested that a more comprehensive review would have probably found evidence of much higher losses from the hidden economy, explaining: “the report found there was virtually no money that went missing during the pandemic. That cannot be an accurate reading of the situation.” 

Levelling an accusation at HMRC officials that “they mark their own homework when it comes to the tax gap”, Murphy continued: “The chance that just £2 billion is lost a year to tax evaders – out of £635 billion paid – is utterly ludicrous. That’s a 0.3% evasion rate.” 

Another tax and financial planning expert, Rachael Griffin, stated that the reported tax gap remaining at a similar level for six years indicated HMRC’s inability to reduce it. 

She added: “The stability of the tax gap over the last few years points to there needing to be a radical change if we are going to ensure that the public coffers are refilled, particularly after they have been so heavily drained due to COVID. The Treasury coffers cannot afford the continuation of this level of tax gap, and the missing £32 billion would be a massive boost to the economy.” 

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