IFS analysis of HMRC self-assessment data shows 1:3 returns under-report tax owed either in error or on purpose, rising to 2:3 self-employed.
With B&B owners and cabbies at the top of the list of tax shirkers!
The IFS found that most underpayments involve less than £1,000.
New analysis shows Bed and breakfast owners and taxi drivers are the British workers most likely to underpay their taxes.
More than half of taxpayers in the construction, hospitality, and transport industries are found to under-report their income to HM Revenue and Customs
That’s according to a study of official figures by the Institute for Fiscal Studies (IFS).
The analysis comes as HMRC figures show £34bn of tax went unpaid in the UK for the 2015-16 financial year.
The tax gap, which estimates the difference between actual receipts and what should, in theory, be collected, stood at 6% of all tax liabilities.
Failure to take reasonable care, or negligence when recording sales, was the biggest behavioural trait contributing to the gap.
And it’s worth an estimated £6.1bn to the exchequer!
However, tax evasion, criminal attacks and unrecorded sales in the hidden economy also made up a significant part of the missing money.
The government said the tax gap was the lowest it had measured on record and one of the slimmest in the world, amid a crackdown on avoidance, evasion and non-compliance.
It said, had the tax gap had remained at the level of 7.9% recorded in 2005-06, it would stand at £46bn this year.
However, critics have strongly questioned the analysis.
The tax gap has always been between £30bn and £35bn in the past decade, which has raised questions over the credibility of the HMRC analysis.
Richard Murphy, a tax expert and former adviser to Jeremy Corbyn wrote:
“The risk is that HMRC is producing data that looks like Soviet-style tractor production statistics. And that helps no one.”
IFS analysis
The IFS analysis looks at random audits undertaken by government officials covering tax returns for the years 1999-2009 to find which types of people are more likely to have under-reported taxes.
It found that more than a third of self-assessment taxpayers have some under-reporting, rising to almost 60% among the self-employed.
Most under-payments are less than £1,000.
However, a small minority of taxpayers owe more than £10,000 and account for nearly half of the missing tax revenue from self-assessment.
It also found men are more likely to under-report than women.
There has been a boom in the number of self-employed workers in the UK in recent years, standing at 4.9 million – or 15.1% of all people in work – in August.
That was up from 3.8 million in 2008.
However, the payment of tax by the self-employed has helped to boost Treasury last year, helping to cut the deficit this year with a jump in receipts.
Although the IFS cautioned that the figures may highlight genuine mistakes by taxpayers, it said random self-assessment was shown to recover an initial £830 for HMRC on average.
An additional £1,230 is shown raised in the following five years because taxpayers’ change their reporting behaviour.
Arun Advani, a professor at the University of Warwick and a research fellow at the IFS, said:
“Between errors and deliberate under-reporting, a significant share of self-assessment tax goes unpaid.”
The government said it had introduced 75 measures over the past seven years to reduce tax avoidance, evasion and non-compliance.
Such as taking steps to ensure multinational companies pay the right amount under UK law.
Mel Stride, financial secretary to the Treasury, said:-
“Today’s data shows how far we have come in tackling avoidance, evasion and non-compliance, but there is still more to do and we will continue to take action to ensure that everyone pays the tax they owe.”
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