UK PAYE and self-assessment tax gap has increased to £8.5bn, reveals study

HM Revenue and Customs (HMRC) PAYE and self-assessment tax gaps have increased over the past 12 months, according to a new study.

Pinsent Masons' analysis also forecasts an increase in the number of investigations into high net worth individuals (HNWs). HMRC has already upped probes into suspected payroll fraud.

Gap explained

Pinsent Masons explained that the tax gap is the difference between the amount of tax that should be collected and the amount that HMRC actually receives. Although the gap involves issues such as avoidance and evasion, it also has other factors.

The law firm's study revealed that the gap was £4.6bn in 2013/14 for self-assessment, an increase of 5% from the previous year. Over the same period, the PAYE tax gap jumped 15%.

Partner and head of tax investigations at Pinsent Masons, Fiona Fernie, said: "The sharp rise in the self-assessment tax gap means we are likely to see HMRC continue their focus on investigations into individual taxpayers.

"With a deficit to plug, they are likely to focus on HNWs who may have significant assets held offshore in complex structures - these kind of investigations are likely to yield high returns."

Increased investigations

Pinsent Masons also reported that the number of investigations conducted by HMRC into suspected underpayment of PAYE employment taxes has increased by 13% over the last year. While 2,197 such investigations were conducted in 2013/14, the following year saw 2,488 take place.

These Employer Compliance Reviews target businesses that are thought to be underpaying employment taxes. However, some of these cases can be due to genuine errors that employers made when calculating taxes due and represent "easy wins" for HMRC, according to the firm.