Umbrella Companies | How can HMRC accurately measure the ‘tax gap’?

How can HMRC accurately measure the ‘tax gap’?

Umbrella contractors might be interested to learn that leading accounting bodies are calling into question the ‘tax gap’.

HMRC claims there is a £42 billion shortfall between the amount of tax it collects and the amount it should collect. Treasury ministers and Revenue officials use the ‘tax gap’ to justify clamping down on tax evaders and tax avoidance schemes.

Chas Roy-Chowdhury, the ACCA’s head of tax, compared measuring the tax gap to trying to grab hold of smoke. David Heaton from the Institute of Chartered Accountants said the ‘tax gap’ was totally misleading. Nobody knows what taxpayers should be paying so how can that be compared with the amount actually paid.

Both men agree that there must be some sort of gap, but disagree on the method of calculation because it lumps together the legal practice of tax avoidance with illegal tax evasion.

A spokesman from HMRC said the tax gap is used as an important strategic tool but the Revenue does also have targets for generating additional revenue from compliance activities.

However, concerns are now being raised in Whitehall that tax avoidance and tax evasion are being viewed in the same light. There is currently a review under way to consider a ‘general anti-avoidance rule’ whereby any arrangement determined to exist solely to avoid the payment of tax would be banned.

Last month the government was accused of actively encouraging companies to use tax havens. In the year leading up to March 2010, 500,000 companies vanished from the UK’s Register of Companies.

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