The Chancellor, Rachel Reeves, should use the £46.8 billion tax gap to fill the £50 billion shortfall in the country’s finances, say leading audit, tax and business advisory firm, Blick Rothenberg.
Fiona Fernie, a Partner at the firm, said: “If Rachel Reeves wants to address the UK’s economy, tackling the tax gap is an obvious choice. HMRC’s last annual report had the tax gap at £46.8 billion, a similar size to the reported £50 billion ‘black hole’ in the country’s finances.
She added: “A huge proportion of the tax gap is attributable to small businesses (60% or approx. £. Sole traders do not have to register with Companies House and it is likely that plenty fly under HMRC’s radar. Even small businesses which are companies, although they need to be registered at Companies House, have significant exemptions in the level of detail that they are required to submit in terms of their accounts.”
She added, “A set of abbreviated accounts, which is what most small businesses file at Companies House, does not need to include a profit and loss account which arguably makes it easier to disguise how much money the business is making and what tax should be paid.
“Perhaps it is time for all small businesses, whether corporate or not, to be obliged to register at Companies House and file full accounts. The increased level of information available to the authorities might make it easier for HMRC to identify underpayments of tax with less resource needed to mount full blown investigations. While there would always be some who try to avoid registering as required, it may discourage some of those who currently fly under the radar by simply not notifying HMRC that they have a source of income.
“Many of the proposals Rachel Reeves is making are tinkering round the edges of raising funds, ostensibly to ensure that she doesn’t break manifesto promises. But arguably we don’t need a political approach to the country’s finances, we need a more practical approach that addresses issues like the tax gap.”
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