In the UK, it is estimated that over 30 percent of self-assessment taxpayers – those that file their taxes themselves as opposed to having an accountant doing it on their behalf – underpay their taxes. That number rises to over 60 percent when it comes to the self-employed. So, which workers are most likely to underpay their taxes?
According to analysis conducted by the British Institute for Fiscal Studies (IFS), taxi drivers and bed and breakfast owners are the workers in the UK most likely to renege on part of their tax obligations when filing self-assessments. This is likely because these workers – particularly taxi drivers – commonly earn in cash, making it much easier to incorrectly calculate earnings or deliberately hide them. More broadly, half of all workers in the transport, construction, and hospitality sectors reportedly failed to fully report their income to the UK’s HM Revenue and Customs, according to the analysis. Interestingly, the IFS research also revealed that men are much more likely to underreport their tax earnings than women.
It seems that genuine mistakes by taxpayers are a large factor in underpayment. When it comes to underpaying tax, the biggest reason for underpayment is “failure to take reasonable care, or negligence when keeping track of sales,” according to the Guardian. It is estimated that this reason alone caused a gap of £6.1 billion in the 2015/2016 tax year. Tax evasion and unrecorded sales also played roles in driving underpayment in some cases, according to the analysis.
The good news is that most underpayments amount to less than £1,000. Just a small minority of self-assessed taxpayers underpaid by over £10,000 – though this minority does account for close to 50 percent of all missing self-assessment revenues.
The UK government has reportedly introduced dozens of new measures over the course of the past several years to crack down on underpayment of taxes, both in terms of underpayment by error and by evasion or avoidance. However, as the self-employed increasingly make up more of the country’s tax base, some argue that more action is needed.
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