Tax: evasion and avoidance in the UK

Published: 7th Oct 2016

In brief

Claim

Tax evasion and tax avoidance costs the government £34 billion a year.

Conclusion

This is wrong, according to the estimates it's using. HMRC estimates that £2.7 billion was lost through tax avoidance and £4.4 billion through tax evasion in 2013/14. £34 billion is the total value of tax that goes uncollected.

“HMRC estimates that illegal tax evasion and legal tax avoidance together cost the government about £34 billion a year”.

Buzzfeed, 28 September 2016

The claim is wrong, according to the estimates it's using.

HM Revenue and Customs estimates that it lost about £2.7 billion through tax avoidance and £4.4 billion through tax evasion in 2013/14. That’s about £7.1 billion altogether.

Overall, it estimates about £34 billion in taxes goes uncollected each year. But not all of it is because of tax evasion and tax avoidance.

And the emphasis should be on the word estimates. HMRC doesn’t know exactly how much it misses out on through tax avoidance and tax evasion—that’s one reason it can’t collect all of it. Instead, it has to make estimates by doing things like investigating randomly selected tax payers, or looking at how many taxable products have been bought and comparing that to the tax it’s actually collecting.

So there’s a lot of uncertainty in these figures and they get revised from year-to-year.  The most recent estimates were published in 2015 for the 2013-14 tax year.

Other people have argued that the scale of tax avoidance and tax evasion in the UK is higher than HMRC suggest. We're only going to look at the set of figures published by HMRC in this factcheck, since they're the ones the claim was based on.

Tax avoidance and tax evasion

Tax avoidance means exploiting legal loopholes to avoid tax. Tax evasion means illegally hiding activities from HMRC to avoid tax.

Over the last five years, HMRC estimate that proportion of tax lost through tax evasion has stayed roughly the same, whilst the proportion lost through tax avoidance appears to be falling.

The overall ‘tax gap’

The overall difference between what HMRC thinks it’s owed in theory and what it actually collects is called the ‘tax gap’.

It includes a number of things as well as evasion and avoidance. HMRC estimates that in 2013/14, differences in legal interpretation cost it £4.9 billion; unregistered paid work cost it £6.2 billion; organised criminal attacks cost it £5.1 billion; non-payment cost it £4.1 billion; the failure of people to take reasonable care with their tax returns cost it £3.9 billion; and honest errors cost it £2.6 billion.

Looking over the last decade, the overall tax gap appears to be steadily getting smaller. It fell from about 8.4% of all tax owed in 2005/06 to about 6.4% in 2013/14, according to the most recent estimates.

HMRC estimates that the overall tax gap varies by about £1 billion a year.

Just looking at the money value of the tax gap doesn’t show a downward trend as clearly. That’s because the total value of tax collected each year gets bigger. Even if the money value of the tax gap is roughly the same, it may fall as a proportion of total tax liabilities.

Correction 31 October 2016

We originally said that "Over the last five years, HMRC estimate that proportion of tax lost through tax avoidance has stayed roughly the same, whilst the proportion lost through tax evasion appears to be falling." This should have said that tax evasion has stayed the same, while tax avoidance has been falling, as was shown in our graph. We have now corrected this. 


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