Publication

Uncollected tax revenue – who is underpaying and what we should do about it

Dr Arun Advani, University of Warwick, has produced a paper on audits and tax revenue, as part of the SMF’s partnership with the Centre for Competitive Advantage in the Global Economy (CAGE).

How can HMRC address the critical problem of non-compliers?

Dr Advani’s latest research provides a thorough analysis of HMRC’s audit performance, and the potential scope and reward of policy change in relation to non-compliance.. The SMF believes that Dr Advani’s work is a significant milestone in analysing HMRC’s audit performance and his conclusions merit real consideration amongst those shaping policy in this area.

More than three million of the ten million people who complete a tax return each year do not pay the full amount of tax, contributing to the annual “tax gap” of more than £30 billion revenue that goes uncollected.

The findings are revealed in a new research briefing by Dr Arun Advani of the University of Warwick and Centre for Competitive Advantage in the Global Economy (CAGE). HM Revenue and Customs will release this year’s overall tax gap figures later this week.

Funding more tax audits by HMRC would bring in billions in extra revenue for the Exchequer, the CAGE report argues, 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.

The briefing, published today by the Social Market Foundation, reveals that:

  • One in three taxpayers who complete a tax return underpay their taxes. That is more than three million people.
  • The total value of tax underpaid via self-assessment is around £8 billion, almost as much as we spend on fire services, buses and nursery places put together.
  • Most of that 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.

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DOWNLOAD THE REPORT: PDF

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