£42Billion Missing From The Taxman's Coffers: Record Gap As 10% Of Revenue Goes Uncollected

[interestrateripoff]

http://www.dailymail.co.uk/news/article-1312720/HM-Revenue--Customs-suffer-blow-official-figures-record-42-billion-tax-gone-uncollected.html

Beleaguered HM Revenue & Customs took another blow last night as official figures showed that the annual amount of uncollected tax has reached a record £42billion.

The extraordinary figure amounts to £1,600 for every household in the country.

The ‘tax gap’ soared under the Labour government, meaning that almost 10 per cent of money owed to the Exchequer goes unpaid.

Experts predicted that HMRC would now target innocent taxpayers as part of desperate attempts to claw in the right sums.

Bank of England governor Mervyn King this week appeared to criticise HMRC after describing calls for it to step up efforts to collect missing tax as ‘almost irresistible’.

Ministers said they were shocked at the rise in the gap between tax revenues and the amount that should have been raised and pledged a new crackdown on tax dodgers.

The gap grew to £42billion in 2008/9 from £38billion in the previous tax year, the latest figures showed.

It means that £9 in every £100 that ought to be collected in revenues is missed or avoided, costing the Treasury massive sums that could have been used to mitigate looming public spending cuts.

Inaccurate self-assessment on income tax accounted for more than £5billion of losses.

The amount of uncollected corporation tax jumped by 19 per cent over two years, from £5.8billion to £6.9billion.

As revenues collapse this becomes an even bigger problem. Still £42bn won't reduce govt debt by much, in fact it may only just cover the interest payments for one year.

[19 year mortgage 8itch]

And people on here have been mocking the Greeks?

[Bloo Loo]

http://www.dailymail...ncollected.html

As revenues collapse this becomes an even bigger problem. Still £42bn won't reduce govt debt by much, in fact it may only just cover the interest payments for one year.

thats 2008/9...thats the year they needed 160bn borrowing.......I wonder if that is included in the borrowing, or is the 42bn ON TOP of what they needed....

cash must be really tight.

still, like banks, the revenue calculate tax as bankers do profits....it is yet to materialise, but that doesnt stop them "investing" them.

[fluffy666]

thats 2008/9...thats the year they needed 160bn borrowing.......I wonder if that is included in the borrowing, or is the 42bn ON TOP of what they needed....

No, it's part of the gap. And doesn't cover things like, non-doms, I expect.

And the number of tax inspectors has been reduced as part of 'efficiency savings'; just as the processing of self assessment was outsourced and 'made more efficient'

Basically if this gap was closed, hardly any of the cuts would be required; but the press has been strangely quiet on the issue, preferring to bang on about welfare scroungers.

[Gone baby gone]

A few things:

It means that £9 in every £100 that ought to be collected in revenues is missed or avoided,

1) Avoidance is legal, evasion is illegal. Avoiding taxes can be as simple as not getting a bonus this tax year as it will push you up in higher rate tax, but deferring it until next year when you expect your other earnings to be lower. The point of some taxes (like CO2 bands on company car tax) is to encourage avoidance.

2) The system is now so inherently complex, it costs them so much to complete a full investigation that they are unlikely to carry one out unless the unpaid tax is substantial. This 10% of uncollected tax will be largely uneconomic for them to collect - the fag ends of tax due if you like. For example, it it was spread across every family in the UK as the article mentions, the cost of proving the tax is due in many cases would easily outweigh the tax that will be collected. The higher the salaries of those in HMRC, the more acute this problem becomes.

3) The almost Kafka-esqe system of tax credits introduced by the previous government and operated by HMRC is also a huge contributing factor to this problem. Even people who work in the same job earning approximately the same amount of money year after year have ended up receiving too much in tax credits due to failures in the calculations made by HMRC. The constant tinkering with rates, exceptions and special cases adds to point 2.

4) Does this uncollected tax include PAYE/NI and Corp tax unpaid by companies and individuals that went bankrupt I wonder?

Edited September 17, 2010 by What's'isname

[Bloo Loo]

Mrs Loo has done her bit.

she is on PAYE. she also is required to fill in a tax return.

apparently, she underpaid her PAYE this time by £2.07.

that needed a wadge of 2 letters to inform, and 2 for the demand.

and theres me thinking its PAYE...the code should be adjusted at minimal cost...no, we have 4 letters and a fee on collection at the bank.

Nice to know they are diligent on our behalf.

note, also, that avery year we get the heavy packet of TAX CREDITS form...we have NEVER had Tax Credits, but we are told yearly to CHECK our last years receipts as clawbacks can happen. And if we dont submit the form on time..we may lose out.

[leicestersq]

A few things:

1) Avoidance is legal, evasion is illegal. Avoiding taxes can be as simple as not getting a bonus this tax year as it will push you up in higher rate tax, but deferring it until next year when you expect your other earnings to be lower. The point of some taxes (like CO2 bands on company car tax) is to encourage avoidance.

2) The system is now so inherently complex, it costs them so much to complete a full investigation that they are unlikely to carry one out unless the unpaid tax is substantial. This 10% of uncollected tax will be largely uneconomic for them to collect - the fag ends of tax due if you like. For example, it it was spread across every family in the UK as the article mentions, the cost of proving the tax is due in many cases would easily outweigh the tax that will be collected. The higher the salaries of those in HMRC, the more acute this problem becomes.

3) The almost Kafka-esqe system of tax credits introduced by the previous government and operated by HMRC is also a huge contributing factor to this problem. Even people who work in the same job earning approximately the same amount of money year after year have ended up receiving too much in tax credits due to failures in the calculations made by HMRC. The constant tinkering with rates, exceptions and special cases adds to point 2.

4) Does this uncollected tax include PAYE/NI and Corp tax unpaid by companies and individuals that went bankrupt I wonder?

Tax Credits, another Gordon Brown fiasco. They should be abolished and IDS's citizens income introduced.

The system needs to be simplified, and overall taxes reduced. Ironically, this could lead to an increase in the tax take. Put up taxes too much, and people dont pay them. They avoid them, or evade them, or just stop working, as the cost benefit equation they face changes with every tax hike. Tax too much, and not only do more people not pay, others see people taking avoiding and evasive action, and then copy them and do the same.

If a state is to exist, it must do 2 things. 1) Defend itself. 2 ) Finance itself.

It cannot do 1 ) if it doesnt also do 2 ), and it cannot do 2) unless it also does 1 ), cos someone else will come in and takeover.

The labour government has pushed taxes too high, and now the whole thing is collapsing. The bond market will be jittery over this news. Time for action methinks, cos unless there is action, then we may no longer be able to do 2 ), which puts 1 ) in jeopardy.

We gotta cut spending, with particular attention paid to the ring fenced area of pensions. Pensioners dont contribute anything, so if we pay them less and they withdraw their labour, we wont notice anything. That is where the big saving is.

Public sector pay needs to be hacked back, and all pension benefits pruned to what can be afforded.

Class sizes must get larger. The NHS must be cut, and the number of drugs and operations available must be cut. All visits to doctors should cost a fiver or a tenner, more for non-uk Nationals.

We need to withdraw from the EU, and protect our borders from illegal immigration. Out of the EU we will save billions now currently being spent on fattening up Euro MP's and building big homes for the European mafia.

We have to withdraw from Afghanistan and most of our overseas bases, except Gibraltar which is worth its weight in gold.

Things are getting desperate now. If the bond market refuses to finance the UK, I am sure that they will print the difference. Hyper inflation will follow, and our supply chains cannot function without a valid currency. This nation could face a food shortage, I dread to of just what could happen.

[Gone baby gone]

Mrs Loo has done her bit.

she is on PAYE. she also is required to fill in a tax return.

apparently, she underpaid her PAYE this time by £2.07.

that needed a wadge of 2 letters to inform, and 2 for the demand.

and theres me thinking its PAYE...the code should be adjusted at minimal cost...no, we have 4 letters and a fee on collection at the bank.

Nice to know they are diligent on our behalf.

note, also, that avery year we get the heavy packet of TAX CREDITS form...we have NEVER had Tax Credits, but we are told yearly to CHECK our last years receipts as clawbacks can happen. And if we dont submit the form on time..we may lose out.

You should try being self employed. 2 years ago I was given a PAYE coding notice by HMRC.

Dutifully sent it to my accountant who laughed and said it was way out, we need to get it changed. He then informed HMRC that the code was wrong. After receiving 2 new (and different) wrong codes, it was year end we were still asking them to adjust to the correct code.

After my final end of quarter PAYE/NI payment, I get a demand saying I owe around £869. Told to ignore this by the accountant, and still more communication fails to sort the matter out. Another RED threatening letter arrives around 2 weeks later saying its a distraint notice and they could come around and start seizing things if I don't pay it. Soooo, I pay the £869 to get them off my back, tell my accountant, and 3 months later get a refund for the £869 overpayment that used bully boy tactics (at great expense to all involved as this necessitated mutiple phone calls to the revenue from both me and my accountant).

Tax doesn't have to be taxing, but unfortunately, due to the system they are operating, it is.

[ken_ichikawa]

A few things:

2) The system is now so inherently complex, it costs them so much to complete a full investigation that they are unlikely to carry one out unless the unpaid tax is substantial. This 10% of uncollected tax will be largely uneconomic for them to collect - the fag ends of tax due if you like. For example, it it was spread across every family in the UK as the article mentions, the cost of proving the tax is due in many cases would easily outweigh the tax that will be collected. The higher the salaries of those in HMRC, the more acute this problem becomes.

Nope HMRC changed tactic years ago precisely because of the £8000-£12000 cost per investigation. What they do is they make lots of unfound allegations against a huge number of people and then ask you to prove your innocence. With the complexity of the tax system proving your innocence is not easy.... however HMRC will do a Spanish Inquisition on you... i.e. if you admit wrong doing even if you are innocent the penalty will be substantially smaller. The more you protest the more threats you will receive about investigations of prior years.

They warn you by lying if you are caught the penalties are massive. Quite often they will get you on a technicality i.e. a mistake. HMRC are supposed to have 3 grades, oversight, negligence and intentional. On small technicalities and or mistakes (VAT is favorite) they will stick it in negligence and fine you a shed load and threaten to investigate your past 7 years.

4) Does this uncollected tax include PAYE/NI and Corp tax unpaid by companies and individuals that went bankrupt I wonder?

Nope, PAYE NIC is top of the list of creditors, if you pay your cheques even slightly late a tax inspector will come knocking on your door within 72 hours. Therefore if the company liquidates they get paid first after the liquidators of course. HMRC is being funny past 2 years they have forced companies to liquidate to collect their outstanding tax which is nuts! As HMRC refuse to negotiate longer credit terms and instead kill the company to collect their metaphorical pound of flesh.

[ken_ichikawa]

I get a demand saying I owe around £869. Told to ignore this by the accountant, and still more communication fails to sort the matter out. Another RED threatening letter arrives around 2 weeks later saying its a distraint notice and they could come around and start seizing things if I don't pay it. Soooo, I pay the £869 to get them off my back, tell my accountant, and 3 months later get a refund for the £869 overpayment that used bully boy tactics (at great expense to all involved as this necessitated mutiple phone calls to the revenue from both me and my accountant).

Your experience is far from unique, common I'd say. Such things are to get free loans off tax payers... you should have demanded HMRC's punitive interest rate of 8% on the £869 back since it was THEIR fault.

[TwoWolves]

Tax Credits, another Gordon Brown fiasco. They should be abolished and IDS's citizens income introduced.

The system needs to be simplified, and overall taxes reduced. Ironically, this could lead to an increase in the tax take. Put up taxes too much, and people dont pay them. They avoid them, or evade them, or just stop working, as the cost benefit equation they face changes with every tax hike. Tax too much, and not only do more people not pay, others see people taking avoiding and evasive action, and then copy them and do the same.

If a state is to exist, it must do 2 things. 1) Defend itself. 2 ) Finance itself.

It cannot do 1 ) if it doesnt also do 2 ), and it cannot do 2) unless it also does 1 ), cos someone else will come in and takeover.

The labour government has pushed taxes too high, and now the whole thing is collapsing. The bond market will be jittery over this news. Time for action methinks, cos unless there is action, then we may no longer be able to do 2 ), which puts 1 ) in jeopardy.

We gotta cut spending, with particular attention paid to the ring fenced area of pensions. Pensioners dont contribute anything, so if we pay them less and they withdraw their labour, we wont notice anything. That is where the big saving is.

Public sector pay needs to be hacked back, and all pension benefits pruned to what can be afforded.

Class sizes must get larger. The NHS must be cut, and the number of drugs and operations available must be cut. All visits to doctors should cost a fiver or a tenner, more for non-uk Nationals.

We need to withdraw from the EU, and protect our borders from illegal immigration. Out of the EU we will save billions now currently being spent on fattening up Euro MP's and building big homes for the European mafia.

We have to withdraw from Afghanistan and most of our overseas bases, except Gibraltar which is worth its weight in gold.

Things are getting desperate now. If the bond market refuses to finance the UK, I am sure that they will print the difference. Hyper inflation will follow, and our supply chains cannot function without a valid currency. This nation could face a food shortage, I dread to of just what could happen.

+1

You should be in office.

[Gone baby gone]

Nope HMRC changed tactic years ago precisely because of the £8000-£12000 cost per investigation. What they do is they make lots of unfound allegations against a huge number of people and then ask you to prove your innocence. With the complexity of the tax system proving your innocence is not easy.... however HMRC will do a Spanish Inquisition on you... i.e. if you admit wrong doing even if you are innocent the penalty will be substantially smaller. The more you protest the more threats you will receive about investigations of prior years.

1) It costs them money to find the anomaly in the first place.

2) They ask you to prove your innocence, and you provide them with evidence.

3) It then costs them money to have someone trawl through that evidence in the context of the original submission + the tax rules.

4) If there is a dispute and it ends up going to a commissioner, etc. the costs spiral.

Nope, PAYE NIC is top of the list of creditors, if you pay your cheques even slightly late a tax inspector will come knocking on your door within 72 hours. Therefore if the company liquidates they get paid first after the liquidators of course. HMRC is being funny past 2 years they have forced companies to liquidate to collect their outstanding tax which is nuts! As HMRC refuse to negotiate longer credit terms and instead kill the company to collect their metaphorical pound of flesh.

Ken, that's doesn't appear to be true (see my post above). I have paid PAYE late on a few occasions - sometimes due to negligence (went on holiday and forgot!) sometimes due to the figures being in dispute, you get a few nasty letters, then a distraint notice and in 13 years I have never had anyone turning up on my doorstep.

When I did get someone turning up on my doorstep was when my VAT payment was credited to the wrong HMRC account and they thought I hadn't paid, within a month there was someone on the doorstep of my registered office asking to see me.

[ken_ichikawa]

Ken, that's doesn't appear to be true (see my post above). I have paid PAYE late on a few occasions - sometimes due to negligence (went on holiday and forgot!) sometimes due to the figures being in dispute, you get a few nasty letters, then a distraint notice and in 13 years I have never had anyone turning up on my doorstep.

When I did get someone turning up on my doorstep was when my VAT payment was credited to the wrong HMRC account and they thought I hadn't paid, within a month there was someone on the doorstep of my registered office asking to see me.

It happened to our accounting firm where we did the payroll twice, maybe its because we were the accountants, or maybe my bosses were not telling me the whole thing, but they used to punt it into us, get those PAYE done soon as, though we moved onto BACS sometime middle of 2008.

[Gone baby gone]

It happened to our accounting firm where we did the payroll twice, maybe its because we were the accountants, or maybe my bosses were not telling me the whole thing, but they used to punt it into us, get those PAYE done soon as, though we moved onto BACS sometime middle of 2008.

Perhaps the expected amount due is a big factor, at most I have had 3 people on my payroll, usually it's just me, so perhaps when the outstanding figures are higher they crack down faster. When I started in business my accountant told me you don't want to mess with VAT as they have swingeing powers to enter your premises, search, etc. Now IR & HMCE merged, they all have those powers...

[porca misèria]

Mrs Loo has done her bit.

she is on PAYE. she also is required to fill in a tax return.

apparently, she underpaid her PAYE this time by £2.07.

that needed a wadge of 2 letters to inform, and 2 for the demand.

and theres me thinking its PAYE...the code should be adjusted at minimal cost...no, we have 4 letters and a fee on collection at the bank.

Nice to know they are diligent on our behalf.

I can do better than that.

Once upon a time, when I was a young student, my then-girlfriend and I suffered the worst service I’ve ever encountered, lunching at a Cambridge restaurant. Instead of leaving a normal tip (shudder) or no tip, we left a tip of one halfpenny. We thought this gave entirely the right message. The other couple at the table (which we shared because the place was busy) fully agreed.

This year’s tax bill reminded me of that. Most tax in the UK is PAYE (pay as you earn), which means that your income, both earned and unearned, comes net of tax. In previous years I’ve had nothing to pay, but rather a small adjustment in my favour. This time, they decided I owed them 10p (that’s ten pence, not pounds). I just availed myself of their online payment facility to pay it by debit card.

I don’t know how much the government’s payment processor charges them per debit card transaction. But as a datapoint, my company gets charged a flat rate of 95p each time we accept a debitcard payment online (that’s different from creditcards, where we get charged a percentage). Big businesses get a much better rate than small ones, but I feel sure HMRC must be making a net loss on a payment as low as 10p.

Heh heh.

[Gone baby gone]

I can do better than that.

Nice one. I would also have rung up a few days later and spoken to someone in person, just to double check the payment was received and waste a little more money.

[stormymonday_2011]

A few things:

1) Avoidance is legal, evasion is illegal. Avoiding taxes can be as simple as not getting a bonus this tax year as it will push you up in higher rate tax, but deferring it until next year when you expect your other earnings to be lower. The point of some taxes (like CO2 bands on company car tax) is to encourage avoidance.

2) The system is now so inherently complex, it costs them so much to complete a full investigation that they are unlikely to carry one out unless the unpaid tax is substantial. This 10% of uncollected tax will be largely uneconomic for them to collect - the fag ends of tax due if you like. For example, it it was spread across every family in the UK as the article mentions, the cost of proving the tax is due in many cases would easily outweigh the tax that will be collected. The higher the salaries of those in HMRC, the more acute this problem becomes.

3) The almost Kafka-esqe system of tax credits introduced by the previous government and operated by HMRC is also a huge contributing factor to this problem. Even people who work in the same job earning approximately the same amount of money year after year have ended up receiving too much in tax credits due to failures in the calculations made by HMRC. The constant tinkering with rates, exceptions and special cases adds to point 2.

4) Does this uncollected tax include PAYE/NI and Corp tax unpaid by companies and individuals that went bankrupt I wonder?

Well as an ex PAYE Auditor for the Inland Revenue (left in the late 1980s) I can tell you that the cost of investigation is tiny compared to the large sums recovered from non compliance work. I used to clear well over 100 cases per year and over 50% involved recovery of tax. Even in the 1980s the sums collected on individual cases could run into sums well in excess of £10,000 and sometimes over £100,000. The amounts collected were many times the salary I was paid. The figure were similar for Tax Inspectors investigating Schedule D non compliance. Most tax evasion is not complicated or difficult to spot. It usually involves Director or individual owners of businesses syphoning off money or receiving benefits in kind and not paying tax on it. Investigations do not require the brains of Einstein to complete and the money is not impossible to recover providing you are prepared to deploy sufficient staff to do the work.. One of my main critcisms of the Revenue in recent years is that it not only handles law abiding taxpayers affairs badly but that it has failed to pursue defaulters with sufficient rigour. In particular its debt recovery functions has been woefully under resourced by managers obsessed with setting up computerised call centres and shutting local offices.The danger of that approach is that it has made the life of honest taxpayers harder while tax cheats have been allowed to get away with massive evasion. Tthe net result is to drive taxpayers from the former group to the latter as the rewards for acting honestly are few and the risks for evaders are small.

This is how failed states start.

Edited September 17, 2010 by realcrookswearsuits

[Gone baby gone]

Well as an ex PAYE Auditor for the Inland Revenue I can tell you that the cost of investigation is tiny compared to the large sums recovered from non compliance work. I used to clear well over 100 cases per year and over 50% involved recovery of tax. Even in the 1980s the sums collected on individual cases could run into sums well in excess of £10,000 and sometimes over £100,000. The amounts collected were many times the salary I was paid. The figure were similar for Tax Inspectors investigating Schedule D non compliance. Most tax evasion is not complicated or difficult to spot. It usually involves Director or individual owners of businesses syphoning off money or receiving benefits in kind and not paying tax on it. Investigations do not require the brains of Einstein to complete and the money is not impossible to recover providing you are prepared to deploy sufficient staff to do the work.. One of the main critcisms of the Revenue is that it not only handles law abiding taxpayers affairs badly but that it has failed to pursue defaulters with sufficient rigour. In particular its debt recovery functions has been woefully undersresourced by managers obsessed with setting up computerised call centres and shutting local offices.The danger of that approach is that it has made the life of honest taxpayers harder while tax cheats have been allowed to get away with massive evasion. Tthe net result is to drive taxpayers from the former group to the latter as the rewards for acting honestly are few and the risks for evaders are small.

This is how failed states start.

So you are saying that the problem begins and ends with the Inland Revenue.

I think most would agree.

[matroskin]

http://www.dailymail.co.uk/news/article-1312720/HM-Revenue--Customs-suffer-blow-official-figures-record-42-billion-tax-gone-uncollected.html

Ministers said they were shocked at the rise in the gap between tax revenues and the amount that should have been raised and pledged a new crackdown on tax dodgers.

Who decides how much "should be raised"? How it is decided? I.e. HMG decided to build a new aircraft carrier for RN and orders HMRC to bring £5B extra?

[Johnny Storm]

Basically if this gap was closed, hardly any of the cuts would be required; but the press has been strangely quiet on the issue, preferring to bang on about welfare scroungers.

No, the reason the cuts are required is not because there is no money. (Although there isnt.) Its because they provide services no one wants and the money would be better in our pockets.

The fact the country has run out of money is an excuse, but not the real reason.

[jareth]

No, it's part of the gap. And doesn't cover things like, non-doms, I expect.

And the number of tax inspectors has been reduced as part of 'efficiency savings'; just as the processing of self assessment was outsourced and 'made more efficient'

Basically if this gap was closed, hardly any of the cuts would be required; but the press has been strangely quiet on the issue, preferring to bang on about welfare scroungers.

The Treasury figures are a guess. They cannot actually know how much money is not being raised because it is on things they have little concrete data for.

The problems stacked up by the previous Chancellors, especially thanks to Brown, appear to me to stem from this perceived gap - they were spending what the Treasury expected to raise not what it managed to raise and made up the difference with borrowed money. Year after year he proclaimed that we would be borrowing tens of billions this year but within five years we would have no deficit. It never happened, the borrowing got progressively bigger and this so called 'gap' looks like the reason.

When it came to tackling this gap the Treasury went down the route of higher taxation, more authority, more centralisation, more legislation and more complexity. It has been counter productive. They have tried to get better compliance by making it more onerous to comply!

[winkie]

The unemployed, the redundant, the low paid and those that can't afford to buy a home or can't afford to move do not pay much tax....what do they expect?...to get blood out of a stone.

[jaynewcastle]

The tax gap figures are merely guesses/estimates each year. How do you know how much tax-free money people are making each year through criminal activities in the black economy ?

Nobody yet has questioned why people with PAYE underpayments of under £300 a year are having them wiped off, due to public/media pressure (this tolerance level currently covers the last 6 years, which means underpayments of up to a maximum of £1800 are not being collected), whilst taxpayers in self-assessment have to pay any tax they owe ie as little as10p as mentioned in a previous post.

[LJAR]

Personally I think the HMRC not collecting tax is a good thing, it is less money that the govt can p*ss up a wall on things nobody wants to pay for.

Make it simple - but its complicated because they think people shouldn't be allowed to decide what to do with their own money.

[Tired of Waiting]

(...) Still £42bn won't reduce govt debt by much, in fact it may only just cover the interest payments for one year.

£42billion is the annual amount of uncollected tax. It would cover the annual interest payment.

And it is a quarter of the annual deficit.

Besides, we must always remember Ramsfeld! These 42bn are just the known missing amount. There is also the unknown missing amount!

.

Edited September 17, 2010 by Tired of Waiting