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It’s fraud, not avoidance, that costs HMRC the most

Here’s something I never thought I would hear Her Majesty’s Revenue & Customs say: tax avoidance is not nearly as big a problem as it appears to be.

Now, that’s not to say that tax avoidance doesn’t account for its share of lost revenue opportunities. The taxman says that around £3.1 billion in tax went unpaid due to avoidance during the 2012/13 financial year. However, this figure pales in comparison to how much tax fraud is costing the Treasury: the tax authority says that fraud activity saw £15.4 billion in taxes going unpaid.

The HMRC released figures recently that measured the tax gap for the year, revealing that the total figure was 6.8 per cent – or £34 billion. While you would think that the taxman’s insistence on stamping out tax dodgers would have put a dent in this figure, it turns out that it’s actually higher than ht year before: the 2011/12 year saw a rate of only 6.6 per cent. Still, both years are considered a success in the face of the 2005/06 year, where the tax gap was shown to be a much higher 8.5 per cent.

David Gauke, financial secretary to the Treasury, spun the figures as positively as he could by throwing the previous government under the bus. The tax gap has been lower than those experienced under the Labour Government since 2010/11, Gauke said, with a total savings of £4 billion. This just adds fuel to the fire for continued pressure to be placed on closing that gap even further, though let’s not forget that it’s an election year and that politicians are likely to say anything to stay in power.

So what does this mean for poor contractors and other self-employed Brits that have been feeling the heat of the Treasury’s constant pressure in rooting out tax avoidance? Well it’s likely to continue for the time being. Sorry mates, no respite here can be found. I suppose it’s cold comfort to know that at least you’re really only a very small percentage of the problem if you’re simply just finding it hard to navigate the minefield of IR35 guidance so the taxman doesn’t come breathing down your neck. However, I would like to see HMRC going after tax evasion a bit more vigorously than it is now. Whether that will actually happen is anyone’s guess though.

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