The amount of money lost to the public purse through tax evasion is likely far higher than the £5.5 billion estimated by Her Majesty’s Revenue and Customs, according to MPs.
The public accounts committee (PAC) said that could be “the tip of the iceberg” and accused HMRC of being “not sufficiently curious” about the true scale of the problem.
In particular, they said the VAT registrations process is “far too open to abuse”, allowing firms to dodge paying the tax they owe.
Overseas traders can still falsely register as UK companies due to the lax checks in both HMRC and Companies House registration processes, the MPs warned.
“This means bad actors beyond the reach of UK authorities can too easily evade paying the VAT they owe and gain an unfair advantage over genuine traders,” the PAC report said.
HMRC estimated that tax evasion cost the Treasury £5.5 billion between 2022 and 2023, but admitted that this calculation was uncertain.
Sir Geoffrey Clifton-Brown, chair of the PAC, said: “It is of deep concern that the many billions in tax rightfully meant for the public purse could just be the tip of the iceberg.
“Not only that, but our own tax authority has not sufficiently curious with a view to accurately diagnosing the problem. Though we acknowledge the inherent difficulty of the issue, it is clear that more must be done to clamp down on fraud and root out the bad actors who are taking advantage of loopholes in the current system.”
The Tory MP added: “The government needs to get a tighter grip on this issue to prevent further tax funds being lost unnecessarily.”
An HMRC spokesman said: “The UK has one of the lowest reported tax gaps in the world, and we’re prioritising closing it further.
“Our risk-based approach to tackling evasion and other forms of non-compliance collected and protected £41.8 billion in the last 12 months – money that goes toward public investments and services that deliver the prime minister’s plan for change.”
