Friday, January 07, 2011

38 Degrees - failing to mind the tax gap

I note that 38 Degrees have started a campaign to encourage the Government to close the tax gap. So far, so good. Unfortunately, that's as good as it gets...

Starting with an implied accusation that the Chancellor is evading tax, unwise unless you've got evidence that he is - don't get me wrong, he's avoiding tax (legal, if a poor example), but he's using the tax regime perfectly legitimately. However, using as your headline figure for the tax gap a figure roundly condemned as a serious exaggeration by most credible sources is not what I expect from a credible campaigning organisation.

However, the tax gap is a big one, £42 billion, according to HM Revenue and Customs itself. However, just because it's big doesn't make it easy to close. The figure includes excise duties lost through smuggling, for example, white van man driving back from somewhere in Europe where duties are lower - for personal use, of course, and then selling them to his 'mates down the pub', up to major operations where millions of illegal or contraband cigarettes are shipped in. Cash in hand payments to builders or carpenters or electricians, or those nice men with some spare tarmac and time to relay your drive.

Individuals claiming to be self-employed when they aren't, one man companies where income is paid in dividends rather than salaries to reduce the tax and national insurance liabilities, unvouched or overstated expense claims, the little fiddles around the edges, paying untraceable cash, it's amazing how it adds up.

And yes, the Government, in the form of HMRC, could probably gather quite a lot of it. The cost would be a level of intrusive enquiry and fishing expeditions that would drive the majority of taxpayers to fear and loathe it. And when you achieve that level of fear, the enthusiasm for avoiding tax increases, and tax revenues begin to fall again. A bit of a mixed blessing, if truth be told.

So, I'll see what return we get on the £900 million to be invested in additional compliance activity yields before I get terribly carried away about the prospects of huge amounts of pain-free additional revenues for the public purse...

1 comment:

weavingsandunpickings said...

Thanks for this post. I get very tired of people suggesting that we could magically avoid all the cuts by cracking down on tax evasion instead. You've conveyed some of the problems with that view very clearly and calmly here - especially the point about overly-intrusive enquiry which I hadn't considered before.