The UK’s tax gap, defined as the difference between owed and paid taxes, has surged by 21% over the last decade, reaching nearly £40 billion. In response, Chancellor Rachel Reeves announced plans to invest £100 million over five years to hire 500 new compliance officers at HMRC to combat tax evasion, targeting to reclaim about £7.5 billion. This growth is primarily driven by corporation tax discrepancies, which alone account for £13.7 billion of the gap, with overall increases seen in 'other taxes' as well. However, reductions in gaps for VAT and other tax categories have been noted.
Labour's ambition to reduce the tax gap is an important one. While it's nigh-on impossible for every penny of tax owed to be collected, if the UK's economy is to grow in the way it needs to, everything possible must be done to ensure the gap is as small as possible between what's owed and what's paid.
The current tax gap in the UK has increased by +21% over the past decade, now sitting at almost £40 billion, marking an annual rise of +4.5%.
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