According to the latest data, HM Revenue & Customs (HMRC) collected 93.5 per cent of expected revenues last year, making the gap between the tax collected and what the authorities expected the smallest ever.
The figures revealed that businesses and individuals paid £363bn less tax than they should have done in the 2014-15 tax year, which was down by 0.4 per cent, or £37bn, on the year before.
Interestingly, one of the main reasons for the shrinking tax gap, which measures the impact of avoidance, evasion and other revenue losses, was reform to the way employers reported payroll taxes.
Since the introduction of ‘real-time information’ in 2013, employers have had to report employee pay on or before every payday, rather than at the end of the year. This has been the biggest reform to the Pay As You Earn (PAYE) system since its introduction more than 60 years and the effect on tax reporting has been huge.
According to HMRC, the proportion of small and medium-sized enterprises (SMEs) that failed to correctly operate PAYE schemes fell from 41 per cent in 2005-06 to only 24 per cent in 2014-15 and the gap for PAYE tax itself fell from £4bn to £2.8bn the same year.
Meanwhile, the shift to reporting VAT online helped to bring the VAT gap down to its lowest level of 10.3 per cent. However, the gap between the amount expected and what was collected shrank the most for corporation tax and excise tax.
Given the evident success of online reporting, HMRC has said it is consulting on requirements for businesses to report financial information quarterly online, rather than once a year, and expects to collect large amounts of extra tax from more regular, accurate information from small firms.