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According to recent figures from HM Revenue & Customs, the tax gap has been reduced by almost ten percent for the year 2009-10. In 2008-09, £39 billion of tax remained uncollected and that has been reduced to £35 billion. This figure is the lowest that it has been since 2004-05 and is equivalent to 7.9 percent of the total amount of tax due, reduced from 8.1 percent in 2009.

Although the figures show a dramatic upturn, there is still considerable improvement to be made. The reduction of the rate of Value Added Tax, introduced temporarily by the Labour government was a huge factor in the tax gap, resulting in lower collections of VAT. In 2009-10, £11.4 billion of VAT remained uncollected, representing 13.8 percent of all tax due.

Other reasons for the tax gap are inaccurate self assessment tax returns and “moonlighting” which is the practice of people having a second income and not making a declaration to HMRC. Corporation Tax is also a problem as £4.8 billion wasn’t collected.

During the Liberal Democrat conference in Birmingham, Danny Alexander announced the recruitment of 2000 new tax inspectors to collect tax due from the highest earners, clamping down on tax evasion. The 2010 spending review saw £917 million being assigned to the closing of the tax gap. Tax receipts are to increase by £7 billion a year by 2014-15. The permanent secretary for tax, Dave Hartnett said:

“The tax gap is the result of a wide range of behaviours and the challenges are constantly changing, but these figures show we are continuing to tackle non-compliance.”

About The Author

Gary Fields

Content Writer working alongside our expert accountants to bring you the latest Tax and Accounting news.

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