Domesday Live

How much tax goes unpaid?

HMRC estimates that roughly 5 to 7 pence in every pound of tax owed is not paid, which is tens of billions of pounds a year. Most of it is not clever schemes by the very rich: the biggest share comes from small businesses making mistakes, not taking enough care, or leaving income out. Avoidance is legal but goes against the spirit of the rules, and makes up a small part. Evasion is a crime.

Why it happens

• Mistakes and carelessness. A large share of the gap is people and businesses getting their returns wrong or not taking reasonable care, especially smaller firms without an accountant to check them.
• Hidden income is evasion. Evasion is breaking the law: not declaring income, hiding money abroad, or running cash-in-hand work off the books. It is a crime and can lead to fines and prosecution.
• Avoidance bends the rules. Avoidance means arranging your affairs to pay less tax in a way that is legal on paper but that Parliament did not intend. When one scheme is closed, new ones can appear.
• It is hard to check everything. HMRC deals with millions of taxpayers and businesses. Governments of both main parties have argued that extra checks usually bring in more than they cost, but there is a limit to how far that goes.
• Big firms and other countries. Large companies can book profits in countries with lower taxes. A global minimum rate of 15% on big multinational companies, which the UK has adopted, is meant to limit this.