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16/10/2014

Insolvencies cost taxpayer up to £4.4bn in latest Tax Gap Estimate

  • Gap could grow from 2015 thanks to legal loophole

HM Revenue & Customs lost up to £4.4bn in 2012-13 because of business and taxpayer insolvencies, according to the latest analysis of the UK tax gap, published today.

R3, the insolvency trade body, says HMRC could reduce this figure by engaging more in insolvency processes.

Insolvency practitioners have also warned that this figure could grow from April 2015 thanks to the implementation of the 2012 Legal Aid, Sentencing and Punishment of Offenders Act.

Giles Frampton, president of R3, says: “HMRC is often the biggest creditor in an insolvency but they don’t always engage with the insolvency process. Input from experienced creditors can really help insolvency practitioners and Official Receivers bring back more money, not just for the taxpayer, but for all creditors.”

“Creditor engagement is also crucial for helping insolvency practitioners combat fraud by directors or individuals.”

Giles Frampton adds: “More concerning is the fact that, from next year, even more money will be lost by the taxpayer because of the government’s refusal to make insolvency litigation permanently exempt from the ‘Jackson’ legal reforms.”

“These reforms will make it incredibly difficult to fund insolvency practitioners' attempts to get money back from rogue directors for creditors. Approximately, £300m worth of creditors’ money is pursued every year at the moment, including £70m owed to taxpayers.”

“The government is shooting itself in the foot by not making insolvency litigation’s temporary Jackson exemption permanent. From next April, up to £70m of taxpayers’ money could stay in rogue directors’ hands.”

In its latest Tax Gap Estimate, HMRC says £4.4bn was lost in 2012-13 due to ‘non-payment’ of taxes; HMRC says this is mostly due to insolvencies. This represented 13% of the total tax gap of £34bn.

HMRC’s latest tax gap report is here.

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.