The UK tax gap is now £40bn – as corporations fail to pay more than ever before

The latest analysis by finance specialists, RIFT, reveals the UK’s tax gap has increased by 21% in the past decade and currently sits at almost £40 billion. That is, businesses are not paying more of their taxes than ever before – while chronically ill and disabled people get DWP benefit cuts.

The tax gap: time to pay for the rich – resulting in benefit cuts for the poor

During Labour’s Spring Statement, Chancellor Rachel Reeves announced that the government is determined to reduce the UK’s tax gap – the difference between the amount of tax owed (technically referred to as ‘theoretical tax liability’) and the amount of tax actually paid – in order to raise something in the region of £7.5 billion in national revenue.

Reeves has also pledged an investment of £100 million over the next five years to recruit an additional 500 compliance officers at HMRC to further clamp down on tax dodgers.

But RIFT’s analysis of government tax data shows that Reeves has a gargantuan challenge on her hands in order to close the gap.

The latest data shows that during the last financial year the UK’s tax gap sat at £39.8 billion, marking an annual increase of 4.5%, and an increase of 21% over the past decade.

What is driving the tax gap?

Further analysis from RIFT reveals that corporation tax is the main cause of the growing tax gap, with the difference between corporation tax owed by UK businesses and the amount actually paid growing by +26.9% in the past year alone to sit at £13.7 billion.

The only other area to have seen an increase is ‘other taxes’ which is up +5.9% on the year.

Meanwhile, the gap for VAT has reduced by -3.6%;  Income Tax, National Insurance contributions and Capital Gains Tax has seen a reduction of -4.2%; and Excise (including alcohol, tobacco and oils) has reduced by -13.8%.

What a mess

Bradley Post, MD of RIFT, commented:

Labour’s ambition to reduce the tax gap is an important one. While it’s nigh-on impossible for every penny of tax owed to be collected, if the UK’s economy is to grow in the way it needs to, everything possible must be done to ensure the gap is as small as possible between what’s owed and what’s paid is as small as possible.

HMRC is doing well when it comes to collecting tax from employees, VAT, and excise, but this good work is being undone by a rapid increase in the amount of missing corporation tax…

Labour’s pledge to reduce the tax gap seems to directly conflict with its methods of increasing tax income which is itself specifically designed to help the economy improve. It’s a circle that’s impossible to square and It’s hard to see how the two things can align.

Featured image via the Canary