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HMRC report estimates Exchequer has lost £35bn

Annual 'tax gaps' publication cites evasion and avoidance among the reasons

17 October 2013

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Tax evasion and avoidance cost the Exchequer £35bn in the last tax year (2011-12), according to an annual report from HMRC. Measuring Tax Gaps, published in October, estimated the loss, which also listed reporting errors, the black market and criminality among the reasons.

Collectively, a large proportion is down to misreported and undeclared earnings by individual businesspeople compared with corporations, notes Ronnie Ludwig, partner in the private wealth group at Saffery Champness.

The official estimates detail £15.3bn of missing income tax, National Insurance contributions and capital gains tax but only £4.7bn of missing corporation tax.

The report claims £5.1bn of the total is because of tax evasion and £4bn is down to tax avoidance; £4.3bn is a result of 'failure to take reasonable care' while errors are responsible for £2.9bn.

Another £4.3bn is the result of differences in interpreting the law between HMRC and taxpayers.

"It is striking that errors and a lack of care in reporting earnings are costing the nation almost as much as carefully engineered structures to facilitate tax avoidance and evasion.

"This should be a wake-up call - education for taxpayers has a role to play here as there is surely huge scope for improvement," said Ludwig.

"While the current efforts directed against avoidance and evasion by corporations are entirely justified, the Exchequer is also losing out on billions of pounds because of underhand practices by individual businesspeople.

"Given today's figures, these individuals will no doubt be high priority targets for HMRC."

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Tax & Wealth structuring