Is tax evasion and avoidance costing the taxpayer £25bn per year?

22 February 2013

Yesterday's BBC Question Time played host to a discussion on the costs of the benefits system among the panelists on the show.

Over on Twitter however, the 'Extra Guest' - who this week was New Statesman contributing editor Laurie Penny - drew attention to another side of the coin in the money that taxpayers lose out on through tax evasion and avoidance, which she claimed was ten times the size of the benefit fraud bill.

So is this the case?

The figure quoted by Ms Penny is that tax evasion and avoidance costs the state £25 billion per year. This seems to have been drawn from research conducted by Richard Murphy, who runs the organisation Tax Research, for the TUC.

This figure actually refers to their estimate of the cost of tax avoidance - where an individual or organisation has "bent the rules" but remained within the bounds of the law to pay as little tax as possible - alone, and doesn't consider the cost of tax evasion - illegally minimising your tax bill.

Of this £25 billion (or to be precise, £24.7 billion) some £12.9 billion is the portion of tax that is avoided by individuals, while it is calculated that corporations avoid £11.8 billion in tax.

It reaches its conclusions by comparing the data collected by the ONS and others on wealth distribution with the data published by HMRC on the tax take from various income brackets.

However it isn't the only estimate of this 'tax gap' out there.

HM Revenue and Customs (HMRC) itself publishes its own annual estimate, and the most recent study, using data from the 2010/11 tax year, found that £32 billion was "missing" from the tax man's balance sheet.

However not all of this was necessarily the result of tax avoidance and evasion. As the graph below shows, HMRC actually consider many more categories of loss for the taxman, including error, the 'hidden economy' and criminal attacks on the tax system. Pure tax avoidance and evasion account for around £9 billion.

However a looser reading of these categories might provide Ms Penny with more support, as while HMRC might distinguish with more granularity in its estimates, there would seem to be enough overlap between categories such as 'avoidance' and 'the hidden economy' to suggest that Ms Penny is in the correct ballpark with her figure.

 

--Image courtesy of  401(K) 2013-- 

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