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How much does the UK really lose to tax avoidance each year?

How much does the UK really lose to tax avoidance each year?

HMRC says that Tax Research UK’s claims that tax avoidance in the UK is currently running at £120 billion a year are very misleading.

The Revenue says this claim has caused concern and confusion, especially as it estimates the tax gap to be £35 billion. Furthermore, HMRC stresses that it collects more than 90% of all the tax that is owing to the Exchequer.

HMRC has produced a report for MPs in which it explains that the disparity is due in part to the estimates not being directly comparable because their definitions are different. Despite that, the £120 billion is misleading because it confuses the tax gap with legitimate reliefs and cash flow in certain areas.

For example, the figures from Tax Research UK do not take the yield from direct tax compliance into account and that totalled £13.9 billion in the financial year 2010-11.

The report ended by saying that measuring the tax gap was not a precise science, but the Revenue is confident that a tax gap of £35 billion is a much more accurate estimate than £120 billion.

The government has been trying hard to clamp down on tax avoidance and close any loopholes as soon as they are discovered. Honest taxpayers would no doubt be very distressed if they thought £120 billion a year was still slipping through the net when a lot of people are struggling to keep their heads above water.

We will never know the true extent of UK tax avoidance, but we must hope that the government closes the gap further in the near future.

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Image: UK Pounds being washed down the bath by Images_of_Money

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