Tax gap is closing but further £8 billion could be recouped by HMRC, providing an alternative to cuts or tax increases, says ARC Budget submission

13 March 2013
(For immediate release)                                                                     

The UK’s current tax gap – the shortfall resulting from fraud, error, non-payment and artificial avoidance schemes - is estimated by HM Treasury to be at least £32 billion per annum, which means that every adult pays an additional £1,000 per year in taxes.

Progress toward closing the tax gap was helped by the Coalition decision taken at the 2010 Comprehensive Spending Review to invest £917million in compliance, and a further £150million in Budget 2012.

In its fully costed submission to next week's Budget, the Association for Revenue and Customs - the trade union representing tax officials - says a further investment of £312 million in HMRC will deliver additional revenues to UK plc of more than £8 billion, a return on investment of more than 26 to 1.

ARC President Gareth Hills said:

“Recouping lost taxes – from companies to individuals, from VAT to corporation tax – makes sense at a time of public outrage over tax avoidance, especially by large multinationals. To do so would also help address the current £100billion deficit providing an alternative to public sector spending cuts or tax increases.

"By investing in key personnel in HMRC, the Government will be guaranteed a significant return. Now is the time for it to act, the time for it to be bold, and the time for it to back a cast-iron winner."

HMRC's own figures show that almost £13billion is lost to indirect taxes (such as £9.6billion of VAT) and £18.7billion is lost for direct taxes, including:

 

£5.2bn

Incorrect tax returns from individuals and partnerships

£4.1bn

Company tax gap, £1.4bn in the UK’s largest companies.

£3.2bn

People not reporting their income or gains (ghosts’ and ‘moonlighters’)

£2.9bn

Incorrect PAYE returns from employers

£2.1bn

General avoidance (and real figure is probably higher)

 

In addition to its specific proposal (see Notes for editors), ARC feels strongly that the Government should reconsider the scale of the proposed reductions in HMRC staffing, as it is set to lose an additional 13,000 staff over this Spending Review period. ARC also urges the Government to urgently address the significant pay disparity with the private sector (where tax experts can earn up to 64% more) to ensure that HMRC retains the skills necessary to reduce the tax gap and tackle complex avoidance schemes.

 

Notes for editors

1. The Association of Revenue and Customs (ARC) is a union representing senior staff in HM Revenue and Customs, including tax inspectors, accountants, lawyers, managers and other leading professionals. ARC represents members in HMRC at grade 7 and above, and also trainees in grade 7 entry schemes. It is also a section of the FDA.

2. The FDA is the trade union and professional body representing 19,000 of the UK's senior civil and public servants. Our members include policy advisors, senior managers, tax inspectors, economists, statisticians, accountants, special advisers, government lawyers, diplomats, crown prosecutors and NHS managers.

3. The FDA (formerly the First Division Association) should be referred to simply as "The FDA" and can be described as "the senior public servants' union".

4. Details on ARC’s costed programme to reduce the tax gap are below:

 

ARC COSTED PROGRAMME TO REDUCE THE UK TAX GAP

Cost

Projected yield over 4 years to 2016/17

  1. Tackling avoidance and technical tax gaps
  1. 100 additional senior tax professionals to be deployed as customer relationship managers for 1000 corporate groups.

£25m

£485m

  1. 50 additional senior tax professionals to be deployed as corporation tax specialists to challenge large business tax returns. 

£12.5m

£510m

  1. 200 additional senior tax professionals and 200 HO/SO tax professionals to challenge avoidance by large employers.

£82m

£1500m

  1. 50 additional tax professionals to challenge avoidance of indirect taxes by large businesses.

£12.5m

£500m

  1. Support for front-line compliance staff through increased travel budget and additional support staff.

£34m

£130m

  1. 20 senior tax professionals to tackle technical tax gap.

£5m

£500m

  1. Additional legal resources, 150 trained lawyers and 50 legal assistants, to accelerate litigation of the Tribunal backlog and accelerate yield.

£45.5m

£2000m

Total

£216.5m

£5,625m

 

  1. Investment in customer and agent support
  1. Business expansion unit of 6 senior tax professional staff.

£1.5m

£35m

  1. 250 SO/HO customer and agent support staff.

£40m

£1,000m

Total

£41.5m

£1,035m

  1. Building future capacity
  1. Recruit an additional 200 graduates each year to train as senior tax professionals. (Yields will quickly build to over £1billion per annum as these trainees complete their training and develop into experienced tax professionals).

£40m

£300m

  1. Recruit 50 chartered tax advisers and train to become senior tax professionals.

£12.5m. 

£1000m

  1. Internally recruit 50 SO/HO tax professionals and train to be senior tax professionals. 

£2m. 

£300m

Total

£54.5m

£1,600m

Overall Total

£312.5m

£8,260m  

 

5.ARC’s full Budget submission can be read here.

6. For further information contact:

  • Gareth Hills, ARC President, tel: 020 7401 5555 or 07870 592356.
  • Kay Hender, FDA Communications Officer, tel: 020 7401 5589 or 07980 700747.