Mr. Murphy and the magic money tree

Richard shows some tables from the HMRC report on the tax gap. They show that very large numbers of peeps aren\’t filling in their forms correctly.

Overall HM Revenue & Customs say 30% of returns have errors. Overall 12% of liabilities are under-reported as a resulted. For the self employed 45% error rates arise. And remember – these ratios ignore almost entirely the true shadow economy – those who are entirely outside the self assessment system altogether and who quite ludicrously HM Revenue & Customs pretend basically do not exist.

This data does not say there is a marginal problem with tax compliance. This data says there is a massive problem with tax compliance.

OK, that\’s very interesting indeed.

What should we do about it?

Only more resources can tackle this problem.

And the resources required are not a limited range of specialists. The resources required are large numbers – tens of thousands – of qualified tax officials working in tax offices throughout the UK to collect the tax that is owing. I have estimated that £15 to £20 billion a  year could be collected if this was done and appropriate legislation was put in place.

That\’s very interesting indeed actually.

For there are a couple of tables in that HMRC report which Richard doesn\’t show us. 8.1 for example, which tells us of the total identified amount lost through individuals cocking up their self-assessment. £3.1 billion. 8.5, the amount lost to employers screwing up: £1.1 billion.

You know, I think Richard\’s found the magic money tree. Just by hiring more taxmen we can collect £20 billion in tax when only £4.2 billion is actually due.

Isn\’t that wonderful?

8 thoughts on “Mr. Murphy and the magic money tree”

  1. “Overall HM Revenue & Customs say 30% of returns have errors.”

    That’s because tax returns are really tricky, as this bloke explains:

    http://www.guardian.co.uk/money/2001/sep/16/tax.incometax

    “So although in 1999-2000 the Revenue got only 72%t of its own self-assessment work right first time, it has zero tolerance for your errors.”

    “Remember above all else, you must at least attempt to be right. Which is difficult when no one ever really knows whether a set of accounts is right or wrong – they can only ever be “OK or thereabouts”.”

  2. I suppose it would never enter Richard’s head that if the system is so complicated why not simplify it then those very clever people could go off and do something useful that generates real wealth and economic growth.

  3. I think he’s assuming the “shadow economy” is four times bigger than the “error economy”.

    Either that or he has to cover up for the fact that his “tens of thousands” of tax experts would probably cost anything between 20 and 100% of the moeny clawed back*.

    *Depending just how many tens of thousands he actually means and how much these highly trained experts would need to prevent them from joining the private sector.

  4. The answer is a flat or at least hugely simplified tax, not more enforcement of over-complicated forms, rates and processes.

  5. What new legislation is needed for HMRC to employ qualified tax people?

    The only way his plans gets more money in is through increased taxation and less scope to argue the toss. The key part is the ‘appropriate legislation’.

    Everything Richie proposes seems to boil down to less money in our pockets and less liberty in our lives.

  6. I think the reason for so much tax avoidance and evasion boils down to incentives. These people are not just motivated by greed, but by a sense that their money is being wasted by politicians on expenditure they don’t agree with. I propose a charity tax cashback scheme where tax payers earning over £100,000 would receive a 50% rebate paid to the charity of their choice at the end of the financial year. This, I believe, would not only provide a net gain, over time, to HMRC, but also help with the coalitions idea of a Big Society. Any thoughts Mr Worstall?

  7. So, if the error rate is 30% and 12% underpay, doesn’t that imply that 18% overpaid, i.e., more tax was paid than justified?
    Unless the average underpayment was 1.5 greater than the overpayment, I suppose.

Leave a Reply

Your email address will not be published. Required fields are marked *