33% of self-assessment taxpayers under-pay, costing Treasury £8bn per year

A third of self-assessment taxpayers do not pay as much tax as they are required to, resulting in the Treasury missing out on £8bn per year and contributing to the annual ‘tax gap’ of £30bn revenue that goes uncollected, new research has revealed.

The findings were published in a new research briefing from Dr Arun Advani of the University of Warwick and Centre for Competitive Advantage in the Global Economy (CAGE). The briefing comes ahead of Her Majesty’s Revenue & Customs (HMRC) report on overall tax gap figures, due to be released later this week.

The CAGE report argued that funding more tax audits by HMRC would bring in billions in extra revenue for the Exchequer, estimating that each new tax auditor hired would bring in enough tax each year to pay their own salary and the wages of four extra NHS nurses.

Commenting, Advani argued: “Few public policies offer better returns than four to one in only five years. With these revenues, the Treasury could pay each auditor’s salary and the salary of four additional nurses as well. More money from the Treasury to do these valuable audits would reap significant rewards, paying for itself and bringing in additional funds.”

However, despite the sum being significant, the report found that most of the tax is owed by a very small minority of taxpayers. “Only 2% of self-assessment taxpayers, around 200,000 people, account for £4 billion of the underpayment. This is equal to almost one penny on the basic rate of income tax,” it said.

Advani’s report argues that it is important to distinguish between small errors made in good faith and large, deliberate underpayments. “While this might make us sound like a nation of cheats, most of these people owe relatively small amounts. It might be that some of these cases are genuine mistakes,” Advani stated.

Supporting his argument that employing a higher number of tax auditors would combat this issue, Advani concluded that: “Cutting auditors is the hallmark of short-term thinking. It reduces current costs, while money from past audits keeps rolling in. But that is not a sustainable strategy.”

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