HMRC focus on eradicating the ‘tax gap’

PAULTON, SOMERSET, UK / AGILITYPR.NEWS / August 01, 2023 / HMRC’s annual report 2022-23, published in July 2023, includes as one of its strategic objectives “Make it easy to get tax right and hard to bend or break the rules”. 

The latest UK tax gap published shows it is 4.8% (reduced substantially from 7.5% in 2005-06).  

The tax gap from small businesses accounts for the largest proportion by customer group, at £20.2 billion or 56% in 2021 to 2022. 

And the report notes that “We’re also seeing more small business customers getting into tax debt, and the average value of customers’ debts increasing”. 

Get in touch with the Sestini & Co UK tax team to help you get your tax affairs in order and reach a place where you can be sure of more proactive and planned tax payments.

Additional compliance checks and measures 

Of the £814bn collected by HMRC in 2022-23, £34bn (or just over 4% of the total) was raised through “tackling avoidance, evasion and other non-compliance”.  

In 2022 to 2023, HMRC opened 299,000 new compliance checks and completed 280,000 compliance checks. They also took action to tackle businesses and individuals who have tried to cheat the tax system, or who commit serious fraud. 

The HMRC compliance strategy is focused around 3 elements “preventing non-compliance, promoting good compliance, and being robust in our response to those who bend or break the rules”.

We note that the report highlights higher tax ayers as a particular target “the number of higher rate taxpayers - who may need more active management in the system - increased by 17% between financial years 2015 to 2016 and 2022 to 2023 and is likely to grow further”.

At Sestini & Co we have considerable experience working with high net worth individuals, ex pats and people with complex tax affairs – get in touch to find out how we can help. 

Penalty reform

HMRC’s revised approach to customers in difficulty includes “introducing a fairer and more proportionate approach to applying penalties to customers who miss a submission deadline or pay tax late, so that we only penalise the small minority who are persistently late to pay and submit returns – not those who make the occasional error.”

They say they are aiming to penalise deliberate non-payers/late-payers/failure to file, rather than companies or individuals who make the odd mistake: 

“Our aim is to help customers get things right before monetary penalties are applied. The points- based system for late returns will not punish customers who occasionally miss a deadline. For late payment penalties, we actively encourage those customers to settle payments immediately or set up a Time to Pay arrangement where necessary.”

IT as part of the fraud detection process

Unsurprisingly, IT and digital tax is set to be a key plank in reducing the tax gap.

HMRC’s investment in IT includes a new investigation and detection risking service set to be up and running in 2023 to 2024 for both VAT and ITSA “with further analysis and risking services to be developed in future”.

HMRC says “it will improve our data analytics capability and enable more effective risking of 5.5 million VAT and Self Assessment repayment claims each year, with a value of around £100 billion.”

Digital tax expands to more customers

From April 2026, self-employed individuals and landlords with income of more than £50,000 will have to keep digital records and submit their Income Tax Self Assessment information to HMRC through MTD- compatible software. 

Customers with an income between £30,000 and £50,000 will need to do this from April 2027. 

At Sestini & Co we were at the forefront of the Making Tax Digital requirements and are able to file on behalf of our customers, removing this time-consuming and costly element from your shoulders.

Customer satisfaction with HMRC is low 

Customer experience with HMRC remains a concern, with small businesses giving 54% for ‘confidence in the way HMRC does its job’, individuals rating it at 43% and agents at 35%.

When asked whether HMRC applies penalties and sanctions equally, small businesses scored this at 39%, individuals at 34% and agents at 49%. 

New complaints to HMRC were up 13.9% in 2023. 

Contact us 

At Sestini & Co we liaise with HMRC on your behalf, invest in the latest CPD training for our UK tax team on changes in regulations and are members of the Chartered Institute of Taxation. 

The CIOT is the leading body in the UK for taxation professionals dealing with all aspects of taxation. Our managers are all Chartered Tax Advisers through achieving the necessary qualifications and experience to gain CIOT membership and demonstrating the highest standards of academic achievement, ethical standards, and adherence to professional conduct in relation to taxation (PCRT). 

If you would like to discuss your tax affairs, get in touch with our UK tax team at 01761 241 861 or info@sestiniandco.com

You can trust our team of experts in UK and US tax to work with you in non-standard situations. We understand your context, circumstances and opportunities, working or living across multiple territories; deal with family trusts, or tax implications of divorcing or separating. 

Whether you’re seeking a tax review, want to check your tax efficiency, improved tax planning or find more efficient and stress-free ways to manage your tax, start a conversation with us today.