An extremely interesting line from HMRC.
The trend in the VAT gap is used by OBR as part of the VAT receipts forecasting process.
This is something that Ritchie just never considers.
That tax rates are set with the certain knowledge that any tax system has holes and gaps in it. Revenues assumed from mooted tax changes are calculated with this knowledge in mind.
In fact, this means that there is no tax gap at all, not the way Ritchie defines it.
Recall, if you will, what he says that gap is. It\’s the gap between what Parliament thinks everyone should be paying and what they do pay.
However, HMRC, thus Ministers and thus Parliament do consider those inevitable holes when setting the tax rates and calculating the revenues to be raised. Parliament gets the revenue that Parliament expects therefore: and thus there is no tax gap at all.
It may well be that Joe has pocketed the £20 he got for cleaning windows and has no intention whatsoever of paying VAT or income tax on it. But the existience of this sort of behaviour is already included in the likely revenue calculations.
Thus, as I say, there is no tax gap at all.