Britain is a nation of tax dodgers

How much more money would the UK government get in every year if it managed to collect every penny it was owed in taxes?

There are various estimates of the size of this ‘tax gap’. The government’s estimate puts it at around £45bn. Other estimates suggest something over £100bn.

That’s serious money: look at the chart here and you will see that, even on the lowest estimates, the tax gap could easily cover all our debt interest payments every year.

Clearly a large amount of this is related to corporate tax evasion. However, the more I talk to people about their attitude towards their taxes, the more I think our shadow economy is significantly larger than anyone imagines.

Think about a home wedding. The make-up artist and the hairdresser will both come to the venue. They’ll both get £150-£200 in cash. They wont declare it. Nor will the decorator who came to the family house to do a little touch-up painting before the relatives arrived.

Nor will the classic car enthusiast who drives the bride to the wedding in his fancy car or the musicians who play as she enters the marquee (half of the cost of which will probably have been invoiced by its owners for form’s sake). The daughters of friends doing the waitressing most certainly won’t be declaring.

And if the bride or her husband is, say, a freelance graphic designer, website expert, heating engineer, nanny, builder or eBay salesperson, odds are she and her fiancé will have saved for the wedding out of undeclared income too. And if they are in their late 30s, both own flats and have rented out one so they can live together, they’ll be keeping that to themselves as well.

However, it is hardly just the middle classes that are scamming the honest taxpayer. In the New Statesman last week, Alice Miles pointed to work by an anthropologist in a former industrial area of Sheffield. The average family income in the area was shown in the official statistics as £4,000. However once all sources of undeclared income were taken into account he calculated it to be more like £17,000. Add it all up and the World Bank’s numbers suggest that tax evasion in the UK runs to about 13.5% of GDP. That’s not far off £200bn.

And even that could easily be an underestimate. Like everyone, we worry at MoneyWeek that the average real wage has barely risen in a decade. But if you look at the size and scope of the black economy (which has been growing) you might wonder if it is only those who get their income solely via PAYE who are suffering.

The government recently announced a “Plumbers’ Amnesty” with the idea of getting the self employed to confess to non-payment in exchange for lower fines. But while this might bring in a little from those who think they might actually get caught (a similar scheme for doctors brought in £10m), it isn’t going to make much of a real difference. Ask a hairdresser if she knows she is supposed to declare the £200 she made at last week’s wedding and I suspect she’ll tell you she doesn’t. And even if she does she probably also knows she isn’t ever going to get caught if she just pockets it.

  • Alex

    “Corporate tax evasion”……..surely you mean avoidance?

    On which note the Government would do well to read the parable of the Goose that laid the Golden Egg. The Government needs to concentrate more on reducing it’s massive expenditure rather than trying to bring more tax income in.

    I remember reading a TPA article that cited an OECD study which concluded that the UK Government was wasting @ £70bn a year, enough for us all to pay a 10% flat rate of Tax with NO reduction in public service provision.

  • robb

    A quiet thread for comments (please don’t chase me Mr Taxman). 🙂

    The example highlights problems with any tax on earnings system and it ends up not being fair.

    How about abolish earnings related taxes and instead tax landowners and put vat on every new item sold (with no business exemption on vat)?

  • Merryn

    Alex, I meant tax evasion. I’ve got no problem with avoidance but companies don’t just avoid… they sometimes evade…just like people.

  • Alastair

    So, do you really think it a wise idea for the government to start sucking out an extra 100bn pounds from the economy year on year?

    Me thinks the full ramifications of said glorious plan have not been wholly thought through.

  • Alastair

    Foreign exporters would love that idea robb.

    Give the British public full discretion over every cent they bring in then make all British produce uncompetitive in a global market.

  • Alastair

    Foreign exporters would love that idea robb.

    Give the British public full discretion over every cent they bring in then make all British produce uncompetitive in a global market.

  • jon livesey

    The World Bank estimates that the shadow economy is one third worldwide, and only 13.6% in the UK.

    And you conclude that it’s the UK in particular that is the nation of tax cheats?

    Nice fanciful word essay about the wedding, though. By the way, what’s it supposed to prove?

  • jon livesey

    The World Bank estimates that the shadow economy is one third worldwide, and only 13.6% in the UK.

    And you conclude that it’s the UK in particular that is the nation of tax cheats?

    Nice fanciful word essay about the wedding, though. By the way, what’s it supposed to prove?

  • JohnOfEnfield

    What else can you do when Tax is too high?

  • Intrinsic Value

    either they are tax dodgers or govt is just incompetent.

  • Alex

    Hi Merryn, I don’t think they evade, avoidance provided you are willing to pay the fees/ bother with various arcane structures is perfectly possible without breaking the law. It’s something footballers and actors are in particular very keen on. I personally avoid as much tax as possible…..why on earth would anyone not?

  • Hoover

    I’m somewhat offended by the blanket accusations.

    I’m a web designer and former freelance translator who has declared every last penny of his income… for ever.

    The reason being I wouldn’t be able to stand the shame of having to explain undeclared income.

    But maybe I’m a mug.

  • david

    A ” plumbers amnesty “? The government have got a bloody cheek –
    what about the expenses scandal ? They all had their noses in the trough for decades ,and were quite happy to steal from the taxpayer as long as they weren’t caught . A few nights before the election ,Jeremy Paxman was interviewing Cameron ,and put it to him that he was one of the highest claimers in the house of commons ! Cameron waffled/ not happy / it was wrong / house in order etc.etc . So , the Prime Minister is a benefits cheat . Leave the plumbers alone .

  • john

    hi Merryn,
    I have no dount you are correct, but is their a solution to this? In Hong Kong taxes are 10% and no one avoids paying because they feel taxes are fair. Is that the solution?

  • Nigel

    Surely this is exactly what will happen as real wages go down, inflation goes up and the tax burden rises? A lot of people are struggling just to pay their bills, keep a roof over their heads, put food on the table and cover their travel costs.

    If it’s a choice between survival or keeping the law, survival will always take precedence. Tax evasion is only likely to increase.

  • George

    “Corporations” is a funny term. When you say corporations, in the context of tax evasion, you surely mean, but avoid to mention, the owners and managers and not workers. That is an important difference worth mentioning.

  • Mike

    You mentioned a lot of trades, but didn’t mentioned freelance journalists and editors. I suppose your trade is above such things.

    “Let she who is without guilt cast the first stone” – Jesus Christ (sic)

    What is your next piece going to be called, “Britain: a nation of shoplifters!”

  • Alex

    You’re spot on Mike. I’ve also a feeling that alot of journalists tend to have seen BTL as there pension ( not ones at MW though ), which might explain the fury with which the media has joined in the general ‘bank bashing’ not so clever buying 4 flats in Birminghams canal district now is it?

    Other major tax dodgers are actors, footballers and policitcians. All of whom are fond of offshore tax solutions, trusts and arms’ length’ businesses.

  • Supermarine Blues

    All attempts to measure tax evasion are fraught with prejudice.

    There is a great attempt by HMRC to obfuscate evasion for avoidance, just as Merryn is doing. It’s just an excuse to beat up the easy-pickings middle classes, who do at least attempt to comply with the iniquitous, absurdly complex tax rules.

    MPs’ allowances, Banks & other Multinationals are untouchable. So are the underclasses.

    It may well actually be the black economy that helps the world to recover from the depression that authoritarianism has created.

    Sorry, it reads like an HMRC hatchet-job & lacks depth.

  • siorsyn

    The answer, pure and simple, is land rent. It won’t tax the labour of the poor. Quite frankly, I wouldn’t declare my income if I was some of the people mentioned in the article. You can’t hide land in BVI. It’s far more efficient, does not affect the process of production and is not inflationary like other taxes.

    And it means the poor are no longer subsidising the rich.


  • Jrobb

    I recently looked at a franchise opportunity which I thought would suit my son. I was surprised when told the price £6000 plus £1200 vat. I researched the business,would provide the cash for it and it would employ my son yet I had to pay the government £1200 for the privilege of starting my own business. It’s bad enough paying tax on profits but I’ll be damned if I’ll pay to start one. Talk about a tax on jobs!

  • ClasticIcon

    As evidenced by government (booms, no busts, financial crises, taxation systems, financiers capture of rent etc) western society is proving itself to lack competence and morality. It should be no surprise therefore that citizens in such systems feel no compunction to follow rules and regulations that such systems generate. Without a sense of morality who can tell what is right or wrong? Pure economic sense must preside and the savvy investor should avoid paying taxes so as to invest in ISA’s or other such tax free vehicles so as to regain money that government steals through intentional inflation!

  • Barry (Tax payer)

    “you might wonder if it is only those who get their income solely via PAYE who are suffering.”

    I think this comment taken from the write-up says it all.
    The government are not tough enough on those hell bent on not their paying taxes.
    Those employed to track these people down need only check peoples Ebay accounts. Can a job be any easier?


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