Looking at tax gap figures published by HM Revenue and Customs spanning six years to 2014/15, RSM found that revenue lost via tax avoidance is at its lowest level ever in the UK, having dropped by more than half, reports International Adviser.
The firm’s findings come as the tax authority revealed last October that the gap between the amount of tax HMRC expected to collect in the last financial year and what it actually raised has fallen to its lowest ever level, and is now one of the smallest in the world.
Indeed, RSM’s table shows that over the last six year, revenue lost via tax avoidance plunged from £5bn in 2009/10 to £2bn to 2014/15.
However, over the same period the amount of revenue lost via tax evasion and the hidden economy rose, reaching £11.9bn in 2014/15.
This is despite HMRC announcing last year that it plans to increase the penalties on anyone who has not paid outstanding taxes from offshore investments ahead of the start of a new data sharing agreement with the crown dependencies and territories in October.
“HMRC has not exactly been idle in trying to clamp down on tax evasion. Indeed, a new, tougher penalty regime is intended to make it more attractive for evaders to come clean. However, this may simply increase the resolve of evaders not to be caught,” said George Bull, senior tax partner at RSM.
Tax avoidance plunges
Bull predicts that UK tax revenue lost via tax avoidance will continue to drop amid recent measures introduced by HMRC including hefty fines for financial advisers and other financial services professionals found guilty of helping their clients dodge tax.
“The graph shows very clearly that tax avoidance is at its lowest level. That’s hardly surprising when one considers the huge amount of resources devoted to tackling this.
“With further anti-avoidance measures having been introduced in 2015/16 and 2016/17, and with more to follow in the next tax year, we confidently expect to see the level of tax avoidance continue to drop in future tax gap estimates,” he explained.
Tackling tax evasion
However, tax evasion is expected to continue to make up a large proportion of the UK’s tax gap, which is the amount of tax which ought to be collectable but which never reaches the Treasury’s coffers, said Bull.
He highlights two reasons behind this – secrecy and lack of political will to tackle tax evasion.
Bull points out that tax evasion and the hidden economy “work precisely because the taxman knows nothing about them”.
“By and large, most forms of tax avoidance require the company or individual concerned to decide how the arrangements should be disclosed in the relevant accounts or tax returns.
"In other words, although there are plenty of opportunities for tax avoidance arrangements to fly beneath HMRC’s radar, there is often something to draw them to the tax inspector’s attention,” he said.
As a result, Bull believes that the HMRC is more willing to crackdown on tax avoidance compared to tax evasion as the former targets a small group of tax payers, which are unlikely to make much of a difference to electoral results.
Whereas, tackling the huge number of people involved in “low-level tax evasion” and the hidden economy “might turn affected voters against the government of the day”, argued the tax adviser.
“In other words, whether the government is Labour, Conservative or Coalition, there will be a group of people arguing that the chances of re-election are not improved if potentially huge numbers of evaders are brought to book ‘on their watch’ by HMRC,” he said.