Social Justice

At least £32bn of tax went unpaid last year amid cost of living crisis

This £32 billion sum would pay for free school meals for every child in a household on universal credit for the next 40 years

Tax gap/ Image of taxes being cut

The tax gap is a huge £32 billion, missed revenue which could have helped vulnerable people. Image: Pexels

As families struggle to pay their bills and are forced to cut back on their food shop, the government has revealed that £32 billion went unpaid in tax last year.

The tax gap is the difference between the amount of tax that theoretically should be paid to the HMRC and the amount that is actually paid. 

The gap for the tax year 2020 to 2021 stands at just over five per cent, the HMRC revealed on Thursday. This equates to £32 billion in missed revenue, or the same amount to pay for free school meals for every child in a household on universal credit for the next 40 years. The government recently declined to extend the free school meals programme because of the cost involved.

The tax gap is down slightly on last year, when the HMRC coffers were £34 billion short, but it comes at a time when people are facing significant concerns about the cost of living crisis. 

Charities have warned that families are “making impossible choices between paying rocketing food bills or rent”, and millions of people are experiencing poverty.

The corporation tax gap is the highest at nine per cent, meaning businesses did not pay £5.6 billion in taxes.

According to HMRC estimates, the gap in corporation tax for large businesses equates to £0.6 billion, mid-sized businesses have not paid an approximate £1.3 billion, and the tax gap for small businesses is highest, equating to £3.7 billion.

Large multinational businesses have long been criticised for not paying their fair share of tax. In 2020, Amazon was estimated to have paid £492m in tax which, although it sounds like a lot, was less than one per cent of their turnover. By comparison, someone working full-time on minimum wage would pay 20 per cent tax on their income straight from their paypacket. Most large companies use legal loopholes and creative accounting to make sure they pay a minimum of tax without breaking the law.

Jonathan Athow of HMRC, said: “The vast majority of taxpayers and businesses paid the correct amount of tax owed. We want to help everyone to get their tax right as the revenue we raise helps fund our vital public services.”

Individuals account for eight per cent of the overall tax gap, representing £2.5 billion in unpaid taxes. Meanwhile, criminals account for 16 per cent of the tax gap, which equates to £5.2 billion.

Sometimes, taxes go unpaid simply because individuals or corporations fail to take care with payments. This is believed to be the reason for 19 per cent (£6.08 billion) of the total tax gap.

A total of 15 per cent of the tax gap (£4.8 billion) is a result of tax evasion, and the same figure is attributed to non-payments. 

Each year, HMRC estimates the tax gap and publishes the information in the interest of transparency. There is some uncertainty for the tax gap estimates for the first year of the pandemic, so the statistics may be subject to revisions.

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