Source · Select Committees · Public Accounts Committee
Recommendation 8
8
HMRC publishes a breakdown of the tax gap by taxpayer group, tax type and behaviour.16...
Conclusion
HMRC publishes a breakdown of the tax gap by taxpayer group, tax type and behaviour.16 HMRC told us that it uses the outcomes of its tax gap analysis as indicators 7 Q 23; C&AG’s Report, para 1.12 8 Qq 23–25 9 C&AG’s Report, para 1.14 10 Q 23; C&AG’s Report, para 1.13 11 Qq 23, 25; C&AG’s Report, para 1.19 12 Q 26; C&AG’s Report, Figure 11 13 Q 28 14 Q 19; C&AG’s Report, paras 2.24–2.25 15 Qq 29–30; C&AG’s Report, Figure 14 16 Q 24; C&AG’s Report, para 1.5 Tackling the tax gap 11 of trends in its performance, which allow it to consider its track record in tackling non- compliance in relation to specific behaviour types and taxpayer groups. HMRC, however, confirmed to us that it does not measure the tax gap in each of the four nations of the UK. HMRC told us that it could attribute a proportion of the total tax gap to each of the four nations based on factors such as, the size of the economy and the number of small businesses in different parts of the UK, and assuming that taxpayer behaviours are broadly consistent across the different regions. But it had not undertaken such an analysis.17 HMRC acknowledged that such an analysis could be beneficial, particularly in the context of the devolution of Income Tax powers to Scotland and Wales in 2016–17 and 2019–20 respectively. HMRC told us that the Scottish and Welsh Governments have an interest in how much combined yield it collects and its attribution to them. It said it has a formula to make sure that the yield compliance directorates recover for income tax is shared between Scotland, Wales and the rest of the UK.18
Government Response
Not Addressed
HM Government
Not Addressed
2. 1 The government disagrees with the Committee’s recommendation. 2. 2 In Measuring tax gaps 2020 edition, the department provided tax gap estimates by tax type, taxpayer group and behaviour. As tax gap models are built to estimate the total gaps by tax type, data and modelling techniques do not allow for some forms of subgroup analysis to be achieved comprehensively – such as analysis by industry sector. 2.3 It may be possible to estimate some components of the tax gap by sector, for example for estimates based on data from the random enquiry programme. In this instance, data from multiple years would need to be pooled together to provide sufficient cases for subgroup analysis, which would mean the department could not present a time-series in this analysis. To improve precision for single-year estimates, additional resource would be needed for the random enquiry programme to increase the number of cases. This would also increase the burden on compliant customers who are selected for enquiry and would entail an opportunity cost as an equivalent number of risk-based enquiries would yield more revenue. In the absence of sufficient data, breaking down the total tax gap by industry sector would entail a high level of assumption and would result in extremely uncertain estimates that would not be in keeping with the level of precision offered by the statistics presented elsewhere in the report. 2.4 The department recognises that from time-to-time risks will emerge in specific industries, regions or tax regimes, and the department will seek to provide tax gap estimates as to the magnitude of these where it is feasible. For example, in Measuring tax gaps, the oils tax gap for Northern Ireland is disaggregated from the gap for Great Britain, which demonstrates the difference in the size of the illicit diesel market between these regions. 2.5 The department will continue to keep its tax gap estimates under review and will prioritise development where most value can be provided to users of its statistics.