Billions lost to tax evasion but HMRC has no targeted measures to stop it - report

Roughly £5.5bn of potential state revenue has been lost due to tax evasion, according to the government spending watchdog.

The vast majority of evasion took place in small businesses which can "easily exploit" weaknesses in government systems, the National Audit Office (NAO) said.

But the body that collects tax - HM Revenue and Customs (HMRC) - does not have a specific strategy to stop it, the NAO said, which means it "lacks a focus on, or explicit objective for, its performance".

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Instead, HMRC aims to stop overall levels of non-compliance from rising.

It also doesn't know how successful it is at tackling evasion as it doesn't track how much reduction comes from the different forms of rule-breaking behaviour, the NAO found.

A growing problem

Evasion has increased among small businesses, despite slowing overall. Small companies now make up 81% of all evasion, HM Revenue and Customs (HMRC) said.

Tax evasion is when a taxpayer deliberately leaves out or falsifies information in tax returns to reduce the amount they're liable to pay.

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The absence of a specific business evasion strategy means there has been "too little emphasis" on some widespread forms of tax evasion in retail, such as abuse of the insolvency process to avoid paying tax debts, the NAO said.

There are "significant gaps" in checks for online retailers and overseas companies can falsely present themselves as being based in the UK to evade VAT, it added.

Attempts to collect more tax

Responding to the report HMRC said the UK has one of the lowest gaps between taxes collected and the amount that should be collected and the government is committed to reducing it further.

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All evasion amounts are estimates and could be much higher or lower.

"While the vast majority of businesses pay the tax that's due, we will continue to use our civil and criminal powers against the determined minority who refuse to play by the rules. Such action helped us protect £41.8bn in the last 12 months," an HMRC spokesperson said.

"We also work closely with partners including the Insolvency Service and Companies House to tackle evasion in retail and online services."