HMRC calculations of the difference between the amount of tax due and the amount collected, which makes up the ‘tax gap’, put the figure at 6.8% of the total due in 2012-13.

This is slightly higher than the 6.6% gap recorded the year before, when HMRC estimates suggested some £33bn of tax was not collected. Over the eight years it has been calculated, the tax gap has been steadily declining from a high of 8.5% in 2005-06.

This total includes an estimated £3.1bn lost to tax avoidance, down from £3.4bn the previous year (that figure itself revised down from the estimate of £4bn published a year ago). However, £5.4bn was lost to criminal attacks, £4.1bn to evasion and £5.9bn to the ‘hidden economy’, a total of £15.4bn from illegal activity.

Despite a raft of initiatives to collect more tax, with a number of tax settlement opportunities and tougher collection powers, the scale of the tax gap remains large. In 20011-12 and 2010-11, the tax gap was £33bn, but overall the tax office has made progress in reducing the tax gap from £37bn in 2005-06.

The report described the latest rise as marginal, and said it was mostly due to an increase in the VAT gap from 10.4% to 10.9%, and an increase in the tobacco tax gap from 12% to 14.2%.

Patrick Stevens, CIOT tax policy director, said: ‘These figures suggest that tax evasion and other illegal activity are costing the Exchequer nearly five times as much as tax avoidance.

'The CIOT has long argued that HMRC needs to put more effort into investigating and prosecuting those who seek to evade tax. The government is right to have put extra resources in this direction, as well as tackling artificial and abusive attempts to avoid tax.’

CIOT is also calling for more simplification of the tax code and self assessment process to ensure that more tax is collected from individuals. HMRC states that £7bn of the tax gap is attributable to ‘errors and carelessness by taxpayers’.

‘£34bn is a large amount of tax not to be collecting and there appears to have been a small uptick after years of the “tax gap” figure falling,’ commented Stephens.

‘However, the figure still compares well to international jurisdictions. The most recent estimate of the tax gap in the US, for example, puts the tax gap there at more than 14% of total tax liabilities, more than double the percentage share in the UK.'

According to HMRC analysis, the reason that the VAT gap grew is that VAT receipts in 2012-13 did not increase as fast as economic data on spending suggested they should have. The department says it has looked closely at the data and reports that it cannot see ‘any significant new pattern of non-compliance to cause us specific concern’.

Provisional data for 2013-14 suggests that the VAT gap will fall over this period.

HMRC concedes that it expected price and duty increases to affect the tobacco tax gap, as they create an incentive to smuggle. However, it states that lowering duty rates would not significantly help prevent smuggling of counterfeit products as some countries with relatively low rates of duty experience widespread smuggling.

Putting the £34bn tax gap in context, HMRC says it collected £475.6bn in tax over 2012-13 which it says indicates 93% of UK taxpayers are compliant in paying their taxes.

The department says it uses the tax gap calculations to develop collection strategies which are tailored to the behaviours of different customer groups.  Compliance revenues in 2012-13 hit £20.7bn, and went on to reach £23.9bn in 2013-14, which HMRC says shows it is getting better at collecting tax that would otherwise not have been paid. However, just under half the £23.9bn figure relates to protecting revenue from non-compliance, which stops the amount of tax collected from falling, but does not reduce the tax gap.