Jonathan Vowles Chartered Accountants

01234 752 566


What Is The Point Of HMRC's Tax Gap Estimates?

Mind the gap ...



Each year, HMRC puts a lot of effort into estimating the tax gap. This is the gap between how much tax they collect and what they estimate to be the tax that should actually be paid ...

HMRC's tax gap means they will be turning their attention to small businesses soon!

HMRC's tax gap means they will be turning their attention to small businesses soon!

copyright: andreypopov / 123rf stock photo

Lots of people will focus on the fact that the tax gap is a lot of money; £33 billion pounds. But remember the tax gap measures what the taxman would like to collect. It is their estimate of where they can improve.

Of course, like all estimates, it is wrong. That is to say, it is probably only 90% or 95% accurate, but that doesn't detract from the lessons that can be learnt from it.

The taxman uses this as a way of working out what they should be doing next, as in which areas of tax compliance to focus on next. This is an important point for the taxpayer to be aware of.

"So, what lessons can be learnt from the latest version of the tax gap estimates?"

The 2016/17 estimate was updated in June 2018. The statistics are shown in several ways. Of most interest are to break it down, firstly, by type of taxpayer and, secondly, by type of tax, which I think gives some clues as to where HMRC's attention will be focused over the next year or two.

So, what can we learn from this analysis? Well, nearly half of the tax gap, 41% of it, is thought to come from small business. A big proportion is from VAT and another big proportion from self-assessment income tax ... all of which means we can expect action to be taken by HMRC to look into those areas.

Of course, this isn't new news. The tax gap has been measured for a number of years, so why is it important now? Mainly because over the last few years, HMRC has been focussed on tax avoidance.

Over the last five years, they have reduced the impact of sophisticated tax avoidance down to an estimated £1.7bn (from £3.1bn in 2013). This is now a much smaller problem, meaning others are more important to tackle more strongly.

The tax gap is also a useful way of comparing different countries and the efficiency of their tax departments. For example, Italy's tax gap is around 34% and the USA's is around 16%, however, the UK tax gap is only 5.7% and has been consistently around 6% for the last 10 years.

Interestingly, a left-wing think tank also publishes their version of the UK tax gap which is around four times bigger than HMRC's tax gap analysis.

But let's focus on what it means:

That small business can expect more action from HMRC. If you run a small business, you need to make sure you have basic protections in place.

Firstly, that you have insurance that covers the cost of being investigated by the taxman and, secondly, that you pay attention to your tax returns and get them right.

Which is where the tax team at JVCA come in. We provide not only expert help and support, but also that all-important insurance to cover the cost of a tax investigation.

"Would you like to know more?"

If you'd like us to help protect you from an HMRC tax investigation then do give me a call on 01234 752 566 or click here to ping me an email and let's see how I can help you.

Until next time ...


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More about Jonathan Vowles ...

I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.

My eclectic interests in growing and developing business span a number of areas, which can be summarised as strategic business advice and tax saving advice.

I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.

I relax by reading fiction and by getting away from the office in a campervan.


01234 752 566