AT least £42 billion of tax due in the UK last year has not been collected, a devastating report on the failings of HM Revenue & Customs stated this week.

Despite this figure, the Westminster Public Accounts Committee noted HMRC had failed to set targets for tax collection. In addition, it said that the authority also lacked ambition to tackle fraud and error and recover losses.

In particular, it noted that only a quarter of the estimated £4.5 billion lost to fraud and error in its Covid-19 support schemes was expected to be recovered. Fraud and error were also high for research and development tax reliefs, which suggests the active involvement of some professional advisers in the losses HMRC is suffering.

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None of this is a surprise to me. I was one of the first people in the UK to write about the tax gap. For years the trade union movement used my alternative – much higher – estimate of the tax gap than that prepared by HMRC from 2010 onwards. Last year I advised the EU on this issue.

I still think it very likely that the tax gap is vastly higher than HMRC says it is. There is good reason for saying that.

It is absurd that HMRC prepares and publishes the tax gap estimate. They are, in effect, marking their own homework. And when you examine their workings (as I have) you discover that their numbers don’t add up. For example, most of their work focuses on the tax returns they get, and not those who never report. The assumption is, as a minister once told me, that those who don’t submit tax returns do not have any income to declare. To describe that as naive is to be polite.

The National: The Palace of Westminster

The reality is that the UK is a hotbed of tax fraud because we make it so easy to form limited companies in this country. As any criminal knows, it’s best not to leave your own fingerprints all over a crime scene. In the UK a fraudster can, in effect, get a new set of fingerprints with which to commit financial crime by buying a company for £12. No questions are asked. No proof of identity, let alone a signature, is required, and the fraudster is set to go.

There are almost 5 million companies in the UK. Around 600,000 disappear every year – about half of which do so because all contact has been lost with them. There is almost no checking whatsoever as to whether the rest submit proper accounts. Companies House simply records whatever it is sent. We have no proper regulator of company law in the UK.

READ MORE: Scotland loses out on £3bn due to Westminster failure on tax dodgers

What we do know is that £67 billion of corporation tax was paid in the UK in the 2021-22 tax year. But only around 1.6 million companies actually paid tax. Ignoring the staggering 1.4 million or so that are too new to have a bill (you can’t pay corporation tax in the first 21 months of a company’s life) this still meant nearly 2 million companies existed and paid nothing in the year.

I am not saying that all of them are fraudulent. They most definitely are not. But hidden amongst the honest ones are very large numbers who might not be declaring their VAT, PAYE and corporation tax bills, and that might mean the tax gap is very much higher than HMRC estimate – because on this issue they just look the other way.

That’s most especially absurd when the average tax investigator collects £18 for every £1 they cost. That money could help transform the UK economy right now, and at the same time eliminate cheats, fraudsters and tax evaders from markets, making life a lot better for all honest traders.

There is, of course, a lesson in all this for Scotland. First it should demand control of corporation tax revenues in Scotland, whether independent or not.

Second, it should insist that all companies trading in Scotland file their full accounts on public record with a revived Scottish Registrar of Companies.

Third, it should ensure that company law is enforced in Scotland.

And fourth, it should investigate tax abuse to both close the tax gap in the country to both raise essential revenue that Holyrood needs and to support honest Scottish businesses.

By doing so the Scottish Government would show that its standards of governance are higher than those elsewhere. It would set the standard it will want the world to believe in when Scotland is independent, when it will be reliant on a well-functioning and enforced tax system.

Is the SNP up for this? I hope so.