The UK’s estimate for underpaid and evaded tax by large businesses has jumped 15 per cent, according to new research shared with City A.M. today.
The ‘tax gap’ for large businesses reached £6.1bn in the past year, ending 31 March 2020, up from £5.3bn the previous year, according to Square Mile-based law firm Pinsent Masons.
Last year’s increase comes despite HMRC increasing its powers to claw back underpaid or evaded tax by large corporates in recent years, the firm said.
The Government plans to make large businesses notify HMRC if they intend to pay tax in a way that differs from HMRC’s interpretation of tax law. If adopted, this requirement will come into effect in April 2022.
“HMRC will no doubt look to close the tax gap as the economy recovers from the pandemic,” commented Clara Boyd, partner at Pinsent Masons.
“It has amassed a formidable arsenal of measures which it can use to claw back unpaid tax, and I expect it will seek to use those powers to their full extent as the Treasury looks to balance the books post-Covid,” Boyd told City A.M. today.
Tax gap for wealthy individuals
The tax gap for wealthy individuals closed slightly over the last year, falling from £1.6bn to £1.5bn.
Boyd: “The fall in the high-net-worth tax gap is a result of HMRC getting more aggressive in how it investigates wealthy individuals’ tax affairs.”
“This has been and will remain a real focus for HMRC. The Treasury believes it is missing out on tax paid by wealthy individuals. While routine audits were suspended for a period during the pandemic, there will likely be a focus on increasing income from investigations quite aggressively as lockdown has ended.”
“Although HMRC has said that the tax residence of individuals stranded in the UK during the pandemic won’t be affected, extra time in the UK may lead to greater scrutiny of an individual’s tax situation more generally,” Boyd concluded.
Pinsent Masons added that the UK’s overall tax gap increased over the past year from £33bn in 2018/19 to £35bn 2019/20.