HMRC loses £16bn a year through tax evasion and fraud

THE Government misses out on £16BILLION a year through people illegally cheating the system and getting away with it, according to an official report.

HM Revenue & Customs (HMRC) has an annual tax collection shortfall of £34bn – with almost half the missing cash lost through evasion, hidden economies and criminal attacks – collectively termed tax fraud.

The tax gap is the equivalent of funding needed for dozens of new hospitals in Britain, according to a study by the National Audit Office (NAO).

Tax evaders cost Britain £4.4bn a year. The criminals typically state lower levels of income or not disclosing offshore income or assets – this is separate to tax avoidance when people bend rules to pay less to HMRC.

However, the so-called hidden economy costs the state even more at £6.2bn, this counts people who are paid cash in hand and therefore pay no tax or rent out rooms without declaring the income.

Criminal activity costs £5.1bn and is where criminals smuggle goods to evade tax or fraudulent generate tax repayments.

The tax collector is not using its data well enough to tackle fraud and there are failure in the way activities are assessed, found the report.

For instance, the NAO criticised how HMRC selects cases for criminal prosecution and said the department could not find evidence prosecutions led to changes in behaviour or increases in tax revenues.

The report suggested HMRC should place more emphasis on measures to prevent losses rather than relying so much on investigating them afterwards.

Meg Hillier MP, chair of the committee of Public Accounts, said: “A staggering £16bn is still lost to tax fraud every year.

“HMRC clearly needs to think harder about how it tackles tax evasion, the hidden economy and criminal attacks.

“The Committee will be examining HMRC’s work in this area throughout this Parliament.

“Time and time again we hear that government departments don’t have the data or information that they need to plan or evaluate their activities properly, despite them being responsible for setting up these projects or programmes in the first place.

“HMRC is no different in this respect. HMRC needs to use the powers and sanctions it has to make a public example of those who break the rules.”

Amyas Morse, head of the National Audit Office, added: “HMRC loses £16bn a year due to tax fraud, but reducing these losses is not straightforward.

“HMRC has met its targets to raise more tax revenue in the short-term. It now needs to consider whether its overall strategy is designed to achieve the best long-term outcomes.

“We will be evaluating HMRC’s performance in tackling different types of tax fraud in more depth.

“As we do so, we will be looking for further improvements in the way HMRC uses data and analysis to understand the effect of its actions in both the long and short-term.”