HM Revenue & Customs (HMRC) is responsible for administering the tax system, including the management and reduction of risks to tax revenue. HMRC measures the tax gap and assesses what behaviour led to that gap. Three types of behaviour that illegally deprive the Exchequer of tax revenue are referred to as tax fraud: evasion—when registered individuals or businesses deliberately omit, conceal or misrepresent information to reduce their tax liabilities; the hidden economy—which involves people whose entire income is unknown to HMRC (‘ghosts’) and those for whom HMRC knows of some sources of income but not others (‘moonlighters’); and criminal attacks—which typically involve coordinated and systematic actions by criminal gangs, with varying levels of sophistication and organisation. Tax fraud results in losses of some £16 billion a year, almost half of the tax gap of £34 billion. The other parts of the tax gap do not involve the law being broken, for example, tax avoidance and genuine errors made by taxpayers when completing a tax return.
Prepared 4 April 2016