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Complexity Drives Up UK Tax Write-Offs

by Robert Lee,, London

29 August 2011

HM Revenue and Customs (HMRC) has 'given up' tax revenue worth over GBP27bn over the last five years, according to a new report which slams the complexity of the UK's tax system.

The figures are revealed in a new report by the TaxPayer's Alliance (TPA) for the 2020 Tax Commission, which is a joint project by the TPA and Institute of Directors. The research conducted for the report focused on remissions and write-offs.

Remissions are classed as debts capable of recovery but HMRC has decided not to pursue the liability, for example, on the grounds of value for money or official error. Write-offs are those debts considered to be irrecoverable because there is no practical means for pursuing the liability, for example, if a firm has gone out of business.

The report's findings show that, over the last five financial years, HMRC has missed out on GBP27.4bn of tax revenue through remissions or write-offs. This is equivalent to GBP1,000 per household over the last five years, or more than GBP200 a year.

In the 2010/11 financial year alone, the taxman missed out on GBP5.9bn. The TPA believes that, if this money had been collected, it would have been possible to slash the standard rate of VAT by more than 1%.

In addition, the report found that, in the last five financial years, HMRC failed to collect GBP4.4bn of income tax. Indeed, the amount of income tax uncollected in 2010/11 was 52% higher than in 2006/07.

The report notes that big increases in lost tax may in part be explained by recessionary pressures on individuals and businesses. However, the TPA is also clear that a much simpler tax system could help to avoid errors of this scale in the future, and argues that, as a result, the deficit could be reduced more quickly.

Matthew Elliott, chief executive of the TPA, said: “It’s ludicrous that our complex and unwieldy tax system means the taxman gives up on billions every year. Taxes are a challenge to administer and a burden on families and we need systematic reform to produce a simpler tax code. Some of this uncollected tax will be down to the recession but there is clearly a long term problem as well. Tax shouldn’t be so taxing that even HMRC can’t keep on top of it.”

Commenting on the report, Liesl Fichardt, a specialist in contentious tax and litigation at Berwin Leighton Paisner, said: "In the current environment, one of the biggest challenges facing the UK government is to make the tax system competitive - history has shown that competitiveness enhances growth. By simplifying the tax regime, the government will make significant strides to achieve this and at the same time, deal with related issues such as narrowing the tax gap and facilitating better administration of tax collection. In addition, the scope for costly tax related litigation will narrow and greater certainty will exist, which makes for a healthy fiscal regime".

The 2020 Tax Commission is expected to deliver its final report and recommendations early next year.

TAGS: individuals | tax | economics | business | United Kingdom | HM Revenue and Customs (HMRC) | revenue statistics | tax reform | HM Revenue and Customs (HMRC) | individual income tax

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