Faculty of Economics and Business

January 11, 2024

Tax gaps and measurements in the UK: stable good practice?

Published in Df.cl on January 11, 2024

In the United Kingdom, Her Majesty's Revenue and Customs, through the Measuring Tax Gaps report, provides an annual estimate of the tax gap. The primary purpose is to provide transparency and accountability for the operation of the tax system. This allows citizens and businesses to understand the state of tax compliance in the country and what disruptions may occur if action is not taken in a timely manner. Through this information, the effectiveness of fiscal policies can be assessed, areas of non-compliance identified and tax collection improved, as well as encouraging inclusive social and economic growth.

To estimate, HMRC uses a combination of 'top-down' and 'bottom-up' approaches. In the first, external, independent data on consumption are used to estimate expected revenues. The “bottom-up” approach is based on internal and audit data, by taxpayer segment.

For the 2022 financial year, HMRC estimated a gap of 4.8%, or £35.8 billion. This means that HMRC was able to collect 95.2% of all tax assessed. In addition, there is a downward trend in the gap, with a steady decline from the 7.5% recorded in FY06. Small and medium-sized businesses account for the largest proportion of the gap at 56%, followed by individuals and high-net-worth individuals at 6%. .

For its part, HMRC assesses gaps according to types of behaviour. Thus, “lack of reasonable care” accounts for the largest proportion at 30%, followed by “mistake” at 15% of the tax gap – these percentages are based on the fact that most of the gap may be due to the complexities and costs of the tax system for SMEs, which makes sense in Chile faces several successive reforms – while “positive evasion” has a weight of 13%, “tax crimes” has a weight of 11%, and “differences in legal interpretation” has a weight of 12%. “Tax evasion” represents 4%, and the informal economy represents 6%. These estimates are published annually and reflect stable and generally accepted indicators, which guide short- and long-term decision-making, which is very useful in tax policy issues, to achieve better levels of tax compliance and citizen satisfaction.

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We hope that Chile's Fiscal Compact will also work towards agreeing stable basic methodologies and measurements of the tax gap and the performance of the Chilean tax system – like the UK example – so that the resulting values ​​are accepted and accepted. Legitimacy in all relevant sectors and actors, as it happens with the variation of the CPI, the level of unemployment, IMACEC and other matters of paramount importance for the economic and social development of our country.

Victor Villalon
DCS Academy

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