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Tax gap widens

21st September 2010

The amount of uncollected tax rose in the last financial year.

According to HM Revenue and Customs (HMRC), some £42 billion was uncollected for the year 2009/10.

That represents a £2 billion increase on estimates for 2008/09.

The largest proportion was accounted for by VAT where the shortfall was £15.2 billion, the equivalent to 16 per cent of the tax take that should have been made.

HMRC has recently conceded that almost £2.2 billion was underpaid in income tax in the two years from 2007 to 2009 through errors in the PAYE system.

However, figures suggest that as much as £3.2 billion has been uncollected for the year 2008/09 alone, a deficit that has arisen because of inaccurate returns from employers.

Some £14.5 billion in direct taxes, such as income tax, national insurance contributions and capital gains tax, were not collected last year.

Corporation tax showed a £6.9 billion deficit.

HMRC said that tax losses were the result of a combination of mistakes or failure to take reasonable care by the taxpayer, the hidden economy where traders don't register for VAT and where moonlighters operate, legal avoidance strategies and criminal attacks such as VAT carousel fraud.

John Whiting of the Chartered Institute of Taxation (CIOT) said: "The Revenue is making progress and UK tax authorities are doing quite well compared to other countries.

"But there is more to done, especially in deciding if the estimates of how much VAT should be collected are right in the first place."