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UK Income Tax Non-Compliance Rates Increase

by Robert Lee,, London

27 October 2015

The UK Self-Assessment and Pay As You Earn (PAYE) "tax gap" reached GBP8.5bn (USD13bn) in 2013-14, up almost ten percent on the previous year, international law firm Pinsent Masons has said.

HM Revenue and Customs (HMRC) figures show that the overall tax gap – the difference between the amount of tax due and the amount collected – fell to 6.4 percent in 2013-14. The Government said that the reduction in the tax gap since 2005-06 represents an additional GBP57bn in cumulative tax collected.

However, Pinsent Masons has pointed out that the Self-Assessment tax gap reached GBP4.6bn in 2013-14, up five percent on 2012-13. The PAYE tax gap rose by 15 percent year-on-year, from GBP3.4bn to GBP3.9bn.

Fiona Fernie, Partner and Head of Tax Investigations at Pinsent Masons, said: "The sharp rise in the Self-Assessment tax gap means we are likely to see HMRC continue their focus on investigations into individual taxpayers. With a deficit to plug, they are likely to focus on High Net Worths who may have significant assets held offshore in complex structures - these kind of investigations are likely to yield high returns. The Revenue is increasingly making use of retrospective legislation meaning anyone who feels that their tax affairs (past or present) could place them at risk of investigation should now seek advice."

Pinsent Masons said that HMRC has already increased the number of investigations into the suspected underpayment of employment taxes. 2,488 Employer Compliance Reviews were conducted in 2014-15, up 13 percent on the previous year.

Fernie explained: "An increase in investigations into the underpayment of employment taxes makes sense against a rising PAYE tax gap. Businesses need to ensure that they fully understand and abide by rules on what should and should not come under PAYE. The Revenue has been clamping down on schemes which allow the avoidance of big tax bills on a variety of different types of payment to employees, or those who should be treated as employees but aren't."

TAGS: compliance | tax | business | tax compliance | law | employees | United Kingdom | payroll | tax authority | offshore | legislation | HM Revenue and Customs (HMRC) | revenue statistics | HM Revenue and Customs (HMRC) | individual income tax | Compliance

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