UK tax 'black hole' is down to another bad algorithm

(Image credit: Pixabay)

A claim by the UK Government that up to £31 billion of tax revenue is uncollected every year was calculated using an algorithm that has been created for the American tax system. 

HMRC is currently working to revise the calculation, which could mean the figure could change dramatically up or down.

The tax gap, which is meant to indicate the difference between money owed to the taxman and the amount actually collected, is set to change as Chancellor Rishi Sunak looks at hiking taxes come the next budget.

According to the Mail on Sunday a new system is being devised that will replace the software currently being used. It was developed by America’s Internal Revenue Service (IRS) and produces financial calculations based on the difference between what a top auditor in the US could find and what an average auditor could reclaim.

Tax calculations

Financial Secretary Jesse Norman stated in July that the £31 billion gap was the lowest on record. Meanwhile, the Treasury has said that it has reduced the gap in its tax liabilities to 4.7% for the 2018-2019 financial year. The figure is 7.5% lower than in 2005-2006.

Jim Harra, current head of the Revenue in the UK is set to answer questions from MPs on the Public Accounts Committee on the issue tomorrow. The central theme to proceedings is likely to be why US software is being used for producing UK tax calculations when the two countries have very different tax systems.

Compared to the US, where almost everyone fills in their own tax return, many taxpayers in the UK are often enrolled in PAYE, which collects revenue directly from their salary.  

Rob Clymo

Rob Clymo has been a tech journalist for more years than he can actually remember, having started out in the wacky world of print magazines before discovering the power of the internet. Since he's been all-digital he has run the Innovation channel during a few years at Microsoft as well as turning out regular news, reviews, features and other content for the likes of TechRadar, TechRadar Pro, Tom's Guide, Fit&Well, Gizmodo, Shortlist, Automotive Interiors World, Automotive Testing Technology International, Future of Transportation and Electric & Hybrid Vehicle Technology International. In the rare moments he's not working he's usually out and about on one of numerous e-bikes in his collection.