UK taxman says cost of evasion and avoidance hits 32 bln stg

LONDON Thu Oct 18, 2012 12:04pm EDT

LONDON Oct 18 (Reuters) - Britain's taxman said the cost of non-compliance with tax rules cost the government 32 billion pounds ($51.73 billion) in lost revenues in 2010-11, up from 31 billion a year earlier.

Tax avoidance has become a charged subject in Britain amid austerity budget cuts and the government is under pressure to show it is ensuring big business and the wealthy bear their share of the economic burden.

A Reuters report on Monday that coffee chain Starbucks paid no corporation tax for three years despite notching up 1.2 billion pounds in sales, prompted calls from lawmakers for an HMR C pr obe and for a tightening in tax rules.

The increase in the 'tax gap' was due to an increase of non-payment of value added tax (VAT) and a growing failure of large companies to pay the appropriate level of corporate income tax, Her Majesty's Revenue and Customs (HMRC) said.

The tax authority added that, as a percentage of total tax liabilities, the tax gap fell to 6.7 percent from 7.1 percent.

However, Richard Murphy, a former tax advisor turned tax campaigner with Tax Research UK, said the figures likely underestimated the level of non-compliance.

"The numbers to me smack of wishful thinking," he said.

"The evidence all over the world is that as a recession bites, the tax gap rises sharply (as a percentage of total tax due)," he added.

Campaigners are also critical of the tax gap as a measure of non-compliance as it does not include losses due to many legal tax avoidance measures, including some used by Starbucks to cut its tax bill.

HMRC defines the tax gap as the difference between the actual tax collected and what would have been collected if individuals and companies complied with the letter and spirit of the law.