HMRC published a detailed report on the UK taxes that they consider have gone uncollected – the so-called “Tax Gap”. In an economic downturn, tax evasion is of prime concern to Revenue Authorities worldwide, and perhaps one of the most surprising findings of the report is that the amount of uncollected tax reduced last year as compared to the previous year.

HMRC define the Tax Gap as the difference between tax collected and the tax that should be collected. Unfortunately, as an objective measure, their view on the tax that should be collected includes tax which HMRC consider should not have been avoided. Accordingly, the Tax Gap measurement does not merely reflect non compliance through and along with illegal activity, but is a combination of taxes evaded and taxes legitimately avoided by tax planning.

HMRC's findings suggest that for the 2009/10 tax year, the Tax Gap was around 8%. This is marginally down on 2008/09, and in value terms by around £4 billion. As a tax head, VAT proved the single most problematic in terms of lost taxes. There also appear to be issues with fuel oil tax compliance in Northern Ireland. In simple percentage terms, the most tax is lost on hand-rolling tobacco, but this should not be of undue concern given the amounts of tax involved.

The report also analyses as the composition of tax evasion and avoidance based on an analysis of taxpayer behaviour. Factors such as criminal behaviour, failure to take reasonable care, simple non-payment and avoidance are all apparently of equal account insofar as they contribute to the Tax Gap.

The full analysis may be found at http://www.hmrc.gov.uk/stats/mtg-2011.pdf.