Small businesses contribute to the tax gap rise

The value of unpaid tax in the UK rose by £1 billion in the past year to £33 billion, although the tax gap fell to 5.7 per cent over the period.

The tax gap represents the difference between the amount of tax that should be collected by HM revenue & Customs (HMRC) and what is actually paid. According to its report, there are a number of reasons why the gap exists.

According to HMRC, almost half of the unpaid tax was contributed by small businesses and this group is responsible for an overall gap of £13.7 billion, mainly contributed by unpaid VAT and corporate tax.

The tax gap was also driven by failure to take reasonable care, which accounted for £5.9 billion, criminal acts, which was £5.4 billion, tax evasion, which contributed £5.3 billion, legal interpretation, which was £5.3 billion, non-payment, at £3.5 billion, errors, accounting for £3.2 billion, the hidden economy accounted for £3.2 billion and finally tax avoidance at £1.7 billion.

This shows that only a very small percentage of the tax gap due was due to tax avoidance, with much of the gap being accounted for by simple errors made in tax returns. This should improve in the coming years with the advent of Making Tax Digital (MTD) and improved accounting software.

Commenting on the figures, a spokesman for the Institute of Chartered Accountants in England and Wales (ICAEW) said it appears that HMRC should be focusing on smaller businesses, VAT and evasion and failure to take reasonable care when filling in tax returns, if they want to lessen the gap further.

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