Never mind the budget, the government just admitted it lost £12bn

Theresa May Budget Tax
Steve Topple

While all eyes were on Philip Hammond’s budget, the government released an estimate of its tax intake for 2016/17. It reveals £12bn worth of ‘missing’ public money. The ‘tax gap’ problem has existed for years – but the plans Hammond announced on Wednesday 22 November will do little to tackle it.

How much???

Every year, HMRC releases its estimate of the VAT gap – the difference between what’s been paid and what should have been. It says [pdf, p2] that, for 2016/17, the preliminary ‘gap’ is £12.4bn. This is a £200m or 1.6% increase in lost revenues on 2015/16 [pdf, p2] and £3.2bn on 2010/11 [pdf, p1].

The amount of money lost as a percentage of the overall VAT intake has been slowly reducing, from 9.7% in 2010/11 [pdf, p1] to 9.6% in 2015/16 [pdf, p2] to 9.3% this year [pdf, p2].

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But hang on

Back in 2013, lawyers at Pinsent Masons analysed the figures and showed that it was the usual suspects avoiding VAT: big businesses.

As Economia reported at the time:

According to Pinsent Masons’ investigations into VAT, avoidance by the UK’s largest companies netted a total of £1.44bn in 2012/13, an 18% increase on the £1.23bn yielded in the previous year, and more than treble the £443m yielded in 2009/10.

And the situation has barely improved. This is despite former chancellor George Osborne vowing in 2016 to ‘take action’ to stop online retailers like eBay and Amazon avoiding VAT. They do this by storing goods in the UK and then selling them overseas without paying VAT.

We’ve been here before

In his budget speech, Hammond said:

We are also taking further action to address online VAT fraud which costs the taxpayer £1.2 billion per year. By making all online marketplaces jointly liable for VAT. Ensuring that sellers operating through them pay the right amount of VAT. Just as we would expect traditional retailers to do.

But the reality is this is just a rehash of Osborne’s pledge, which has so far had little impact. So it would seem that the government considers VAT avoidance in the same way it does every other tax. That is, if big business is doing it, the only eye turned is a blind one.

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