Business insolvency is a likely cause of up to an eighth of the tax that is owed to HMRC each year but goes uncollected, according to a new report.
HMRC has published the latest ‘tax gap’ statistics, showing how much tax was owed in 2011-12 but, for various reasons, has so far not been paid.
At 7% of all tax due, the figures continue a downward trend since the problem peaked during the recession, but still some £35 billion is lost overall each year.
In a breakdown of the reasons why tax goes unpaid, HMRC says 12%, roughly £4.4 billion, is due to ‘non-payment’.
This is almost as much as the £4.7 billion lost due to criminal activity like smuggling, and more than the £4.0 billion lost through tax avoidance.
Business insolvency is a major contributor to non-payment, which HMRC defines as: “Tax debts that are written off by HMRC and therefore result in a permanent loss of tax – mainly as a result of businesses becoming insolvent.”
While companies generally do not like paying tax unnecessarily, prompt action to avoid company insolvency could help to plug this gap in future years, potentially adding more than £4 billion of lost taxes back into the national income.
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