The measure

HMRC have issued a document "Protecting Tax Revenues 2009". It does not include any proposed legislation. It does however include a summary of the government's approach to defining, measuring and reducing the 'tax gap'.

The government's approach involves support for those who seek to comply with the law and vigorous action against those that do not. It also considers simplifying tax administration and encouraging work and enterprise. The document also summarises the work undertaken to build up an understanding of the nature, incidence and motives of those who do not comply. It also discusses possible legislative changes to improve the structure and resilience of the tax system alongside new operational approaches to make the system less vulnerable, while minimising burdens on customers; and includes setting HMRC targets for reducing underpayments as part of their performance framework.

In summary HMRC defines the tax gap as the difference between:

• The sum of the effects of taxpayer's non-compliance with the letter of the law, taxpayer avoidance and taxpayers' legal interpretation which differs from HMRC's; and
•  The effect of HMRC's interventions.

HMRC has published a separate, lengthy document 'Measuring Tax Gaps 2009'. It estimates the tax gap for 2007/08 as £40 billion, comprising £15 billion for indirect tax and £25 billion for direct tax, including both corporate and income tax. HMRC estimate the UK's tax gap as 8% of expected revenue, and notes this is less than most of the equivalent gaps in the relatively few countries which publish estimates of their tax gap. HMRC also note that their definition of "tax gap" is broader than that of most countries.

HMRC also attempt to measure their performance, noting that HMRC's compliance yield for 2008/09 (£12 billion) was approximately 20% of the estimated tax gap.

The report also breaks down the tax gap into 8 main components, which it calls 'behaviours'. These are: avoidance, evasion, legal interpretation, failure to take reasonable care, criminal attacks, hidden economy, non-payment and error. It sets out HMRC's approach to each of the 'behaviours'.

Who will be affected?

As there is no measure no taxpayers are directly affected. However the document is of interest to all those interested in the government's approach to "protecting tax revenues", measuring the tax gap and reducing it.

When?

The period concerned includes 2007/08, and 2008/09 for some taxes.