HMRC should shift focus to reducing tax error, says law firm

HMRC should prioritise reducing error and instances of failure to take reasonable care in order to make greater inroads into the tax gap, according to law firm Pinsent Masons

The tax gap fell to 6.5% of tax due in 2014-15, equating to around £36bn, HMRC said in figures released this week. The data revealed tax avoidance had fallen from £3.5bn in 2010-11 to £2.2bn in 2014-15, making up around 6% of the shortfall.

Failure to take reasonable care stood at £5.5bn of the tax gap in 2014-15, while error accounted for £3.2bn. Together, they make up 24% of the tax gap for that year (15% failure to take reasonable care, 9% error).

The portion of the 2007/08 tax gap (p66) made up by failure to take reasonable care was 15%, while error was 7.5%. Avoidance at the time accounted for 17.5%.

HMRC has been particularly focused on tackling tax avoidance over the last five years and has seen a significant reduction in its portion of the tax gap as a result.

But HMRC needs to ensure that ‘they do not go too far and that their focus on the issue is not disproportionate’, Pinsent Masons head of tax Jason Collins said.

He added: ‘While avoidance is often the most politically charged proportion of the gap, and the one which attracts most public attention, it is just one factor. According to the figures, bigger ills now seem to be honest or careless mistakes. More effort should now perhaps be placed on reminding individuals and businesses of their duty to get their tax right, and on creating a system which is easy for taxpayers to use.

‘A constant stream of legislative changes and requirements over the last few years mean that the tax system is now more complex than ever. Ensuring adequate guidance and support is in place to guide taxpayers through should now be a priority for HMRC.’

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