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baker tilly questions hmrc tax gap hole

By International Adviser, 6 Jun 13

A tax specialist has uncovered a ‘big hole’ in HMRC’s tax gap figures, following the publication of data by The Institute of Economic Affairs (IEA) relating to the amount of money the Exchequer is losing to the UK’s shadow economy.

A tax specialist has uncovered a ‘big hole’ in HMRC’s tax gap figures, following the publication of data by The Institute of Economic Affairs (IEA) relating to the amount of money the Exchequer is losing to the UK’s shadow economy.

The IEA study, published earlier this week, revealed that Britain’s shadow economy is worth £150m a year. The report defines the shadow economy as paid work not officially declared to the Government.

HMRC’s tax gap figures for 2010/2011 put losses to the hidden economy and tax evasion at £9bn a year. However, George Bull, head of Baker Tilly’s professional practices group, has argued that the new IEA research suggests the real figure should be closer to £66bn – more than the cost of the Olympics, Bull points out.

Bull’s ‘informal estimate’ follows the IEA’s report that estimates that in the UK the shadow economy now  constitutes approximately 10% of GDP.

Bull offsets the IEA’s 10% figure against the Treasury’s 2013 budget day figures – which estimate that government receipts derived from all forms of taxation (including council tax and business rates) are around £600bn.

“If that’s only 90% of what it should be, because the shadow economy accounts for 10% of the total, then it looks as though the shadow economy costs the Exchequer around £66bn in lost taxes each year, “ he said.

Bull added that this figure was “more than six times the cost of the Olympics” and called on HMRC to look again at its own tax gap figures, and for the Treasury to “consider what resources should be made available to HMRC to tackle the massive amount of tax lost through the shadow economy."

Tags: Baker Tilly

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International Adviser covers the global intermediary market that uses cross-border insurance, investments, banking and pension products on behalf of their high-net-worth clients. No news, articles or content may be reproduced in part or in full without express permission of International Adviser.