This week's opinion: 23 September 2021

The issue of a new edition of HMRC’s tax gap analysis is always thought provoking (tinyurl.com/hmrctaxgap21). My first reaction was how far the public narrative of massive tax avoidance by the largest companies is at odds with the statistics. Only 4% of the total gap is now attributable to avoidance and the large business gap is little more than one-third of the gap attributable to small business. That depends on how much reliance can be placed on the methodology. I am no expert here, but it seems to me that the robustness of the data has increased significantly since HMRC started to publish tax gap information. 

The statistic likely to resonate most with our readers is that an estimated 24% of self-assessment returns for business taxpayers under-declare tax liabilities, with a substantial proportion understating by at least £1,000. (I can’t see from the methodological index whether this is a net figure which also takes account of over-declared liabilities.) Is it really the case that one in four returns leaving our readers’ offices understate liabilities? I don’t think for one moment that it is. My expectation would be that many of those errant returns will have been submitted without the assistance of an experienced or qualified agent.  

Making tax digital (MTD) lurks in the background. HMRC has previously stated that one of the main aims of MTD was to close the tax gap in the small business sector. I have heard less about that recently but I am sure that it remains part of HMRC’s thinking. I’m not naïve. There are lots of cases of cash receipts from small business owners not finding their way into the accounts or deductions claimed for personal items but it is hard to see any new system of tax administration (whatever its other merits) making any real difference.