He tells us that the Oxford report on corporation tax proves that his estimate of the tax gap is correct:
Now let’s pull this data together. 90% of companies paying 90% of all corporation tax do not pay at the expected rate of 28% but instead probably pay at a rate less than 21%. Of course that’s an extrapolation of what Oxford say, but it seems a fair one based on what they say. So, currently £32.4bn of corporation tax paid is the result of tax charged on large companies at a rate of less than 21% (let’s call it 20.5% – we don’t want to over-egg this) when as Oxford note (and they would not note this unless they thought it reasonable to surmise this) a rate of 28% was expected, irrespective of allowances and reliefs.
So let’s gross up £32.4 billion and see how much tax would have been paid if settlement had been at 28% and not 20.5%, and the answer is £44.3billion. Take off the sum we first thought of – i.e. £32.4 billion – and the difference is £11.9 billion. Which give or take is near enough £12 billion. In fact if I’d assumed the rate was 20% and not 20.5% the gap would have been £13 billion.
In the Missing Billions I said the expectation gap – the difference between the sum we’d expect large companies to pay and the amount they actually pay – was £12 billion a year at the time. And now it’s near enough almost exactly £12 billion.
The fact is the Missing Billions was right all along.
Yup. He\’s entirely ignored the existence of allowances.
And there are a number of such allowances. Capital allowances, R&D tax credits, for all I know there\’s a sucking up to Ed Balls tax allowance.
So, he\’s made here exactly the same mistake he made those years ago in The Missing Billions. He is comparing headline tax rates with paid tax rates and then calling the difference the tax gap. When some (how much is of course still at issue) is the result not of tax avoidance, tax abuse, but is the entirely righteous practice of tax compliance. Using the reliefs mandated by Parliament as Parliament intended those allowances to be used.
And that really cannot be part of any \”tax gap\”, can it?
Do read through the comments over there as he gets a right going over on this point.
And now, for my party trick, I shall show that UK companies are actually paying too much in corporation tax. Far from there being a tax gap, there is in fact a very large overpayment of tax.
So, using Ritchie\’s numbers above, there should be £44 billion paid in corporation tax. But only £32 billion is. That\’s the source of his £12 billion.
But, as we\’ve already noted, no allowance has been made for allowances. Those bits that Parliament deliberately puts into the tax law to get companies to do what Parliament wants companies to do.
As an example, let us take capital allowances. How much, for example, do capital allowances cost the Treasury?
We can take our answer from Hansard.
Matthew Hancock: To ask the Chancellor of the Exchequer what estimate he has made of the annual cost to the Exchequer of maintaining company capital allowances at May 2010 levels. 
Mr Gauke: The annual cost to the Exchequer of maintaining capital allowances at May 2010 levels is currently around £20 billion around 85% of which relates to companies.
My word, that is interesting, eh?
£17 billion in capital allowances to companies.
So, back to our sums. At 28% there should be £44 billion righteously paid in corporation tax. But we\’ve also got £17 billion in capital allowances. The cost to the Treasury is, I assume, at least similar to if not equal to (and please do correct me if I\’m wrong here) the reduction that companies get on their tax bills.
So, we would expect there to be £27 billion paid in corporation tax. Yet, as Ritchie notes, actual tax paid is £32 billion.
Thus companies are over paying tax by £5 billion.
There is no corporate tax gap in short.
Now, please note, not even I actually believe this result in detail, I mean it just as an example of why that £12 billion estimate is entirely Ritchiebollocks.
Just to hammer it home. The Murphmeister tells us that the gap between the headline rate and the rate paid shows that there is a tax gap. Yet he does not adjust for the allowances that are there in the law which reduce the amounts that are righteously and legally owed. And we seem to be able to show that those allowances are larger than his purported tax gap.
That is, that there is no tax gap at all.
Now, given that I am not an expert in tax there may well be some problem with this numerical example. The logic is sound but the numbers may not be: in which case please do correct me.