Official Statistics

1. Tax gaps: Summary

Updated 22 June 2023

The tax gap is estimated to be

4.8%

of total theoretical tax liabilities, or £35.8 billion in absolute terms, in the 2021 to 2022 tax year.

Total theoretical tax liabilities for the year were £739.3 billion.

Headline tax gap estimates

Headline tax gap estimates are:

• the UK tax gap in 2021 to 2022 is estimated to be 4.8% of total theoretical tax liabilities, or £35.8 billion in absolute terms, which means HMRC collected 95.2% of all tax due

• there has been a long-term reduction in the tax gap as a proportion of theoretical liabilities: the tax gap reduced from 7.5% in the tax year 2005 to 2006 to 4.8% in 2021 to 2022 – remaining low and stable between the years 2017 to 2018 and 2021 to 2022

• the tax gap for VAT reduced from 14.0% in 2005 to 2006 to 5.4% in 2021 to 2022

• there has been a reduction in the Income Tax, National Insurance contributions and Capital Gains Tax gap from 4.5% in 2005 to 2006 to 3.0% in 2021 to 2022

• the tax gap for Corporation Tax is 13.3% in 2021 to 2022, up from 11.4% in 2005 to 2006

• the tax gap for excise duty reduced from 8.3% in 2005 to 2006 to 6.1% in 2021 to 2022

• the largest component of the tax gap by tax type is the Income Tax, National Insurance contributions and Capital Gains Tax gap at a 35% share, followed by the 30% Corporation Tax gap proportion and 21% VAT gap share of the overall tax gap

• the tax gap from small businesses is the largest proportion of the tax gap by customer group at 56% in 2021 to 2022, the tax gap from individuals and wealthy each make up a low proportion of the tax gap at 6% and 5% respectively in 2021 to 2022

These figures are our best estimates at the time of publication. Tax gap estimates are uncertain and subject to revision. Uncertainty ratings and revisions for each component of the tax gap are available in each chapter.

Overview

What the tax gap estimates show since tax year 2005 to 2006 up to 2021 to 2022

Figure 1.1 shows the tax gap time-series in absolute terms and as a percentage of theoretical tax liability. The tax gap estimate has fallen from 7.5% in 2005 to 2006 to a low of 4.8% in 2020 to 2021 and 2021 to 2022. There were peaks at 6.9% in 2008 to 2009 and at 7.0% in 2013 to 2014. The tax gap has remained at relatively low levels and been broadly stable since 2017 to 2018.

While the tax gap value in absolute terms (£ billion) remains fairly flat, ranging between £28.8 billion and £37.1 billion over the time series, the percentage tax gap has decreased due to total theoretical tax liabilities increasing from £437.9 billion in 2005 to 2006 to £739.3 billion in 2021 to 2022.

Figure 1.1: Tax gap by value and as a percentage of theoretical tax liabilities, 2005 to 2006 up to 2021 to 2022

Notes for Figure 1.1

1. The full data series can be seen in the online tables.
2. Figures for previous years have been revised following methodological improvements and incorporating more up-to-date data.

The percentage tax gap gives us a better measure of compliance over time. It takes into account the effects of inflation, economic growth and changes to tax rates, whereas the cash figure does not. For instance, in a growing economy where the tax base is increasing, even if the percentage tax gap remained level, the cash figure would grow.

Unlike previous editions of ‘Measuring tax gaps’, the percentage tax gap for tax types will now be the same between this section and the separate published tax gap figures in subsequent chapters. However, for some of the components we use published receipts figures where liability figures are not available. Self Assessment, PAYE and Corporation Tax uses liability figures whereas VAT, excise duties and all other remaining taxes use receipts figures.

You can read the published receipts figures on GOV.UK.

For more information on the rates of different taxes, excise duties, interest rates, exchange rates, allowances and levies published by HMRC, please see the full list of rates and allowances

Tax gap by type of tax

Main findings

Figure 1.2 shows the tax gap as a proportion of the theoretical tax liabilities between 2005 to 2006 and 2021 to 2022 for the overall tax, as well as broken down by its components – VAT, excise duties, Income Tax, National Insurance contributions and Capital Gains Tax, Corporation Tax and other taxes.

While most of the components follow a downward trend, with the largest proportionate fall between 2005 to 2006 and 2021 to 2022 in the VAT gap, falling from 14.0% to 5.4%, the Corporation Tax gap estimate has increased in the most recent years, rising to 13.3% in 2021 to 2022. The higher estimates of the Corporation Tax gap are due to new random enquiry data on levels of non-compliance for the small business population. This new data also affects the estimated tax gap breakdowns by customer group and non-compliant behaviour.

The excise duty gap shows a smaller proportionate fall from 8.3% in 2005 to 2006 to 6.1% in 2021 to 2022, while the tax gaps for other taxes and Income Tax, National Insurance contributions and Capital Gains Tax have remained relatively constant.

Figure 1.2 Tax gap by tax type as a percentage of total theoretical tax liabilities

Notes for Figure 1.2

1. The full data series can be seen in the online tables.
2. IT, NICs and CGT stands for ‘Income Tax, National Insurance contributions and Capital Gains Tax’.

Figure 1.3 shows how the tax gap is broken down into different taxes in the last 5 years. It shows that the Income Tax, National Insurance contributions and Capital Gains Tax gap accounts for around a third of the overall tax gap in each of the last 5 years. The Corporation Tax gap share has increased from 18% of the overall tax gap in 2017 to 2018 to 30% in 2021 to 2022. The share of the tax gap from VAT has fallen from 34% of the overall tax gap in 2017 to 2018 to 21% in 2020 to 2021 and 2021 to 2022.

Figure 1.3 Tax gap by type of tax – share of tax gap, 2017 to 2018 to 2021 to 2022

Notes for Figure 1.3

1. The full data series can be seen in the online tables.
2. IT, NICs and CGT stands for ‘Income Tax, National Insurance contributions and Capital Gains Tax’.

Tax gap by customer group

Every year, HMRC collects revenues from millions of individuals and businesses of all sizes. To help us do this, we segment our customers into groups so we can identify their needs and risks more accurately and tailor our responses – whether that is by providing appropriate support to help customers get their tax right, or by taking targeted action to tackle avoidance, evasion and criminal activity.

Tax gap measurements are aligned with this customer segmentation, so we can use the insights gained to improve how we manage these customer groups:

• individuals

• wealthy

• small businesses

• mid-sized businesses

• large businesses

• criminals

We use the tax gap to understand what drives non-compliance and to provide a foundation for our compliance strategy.

You can read more about HMRC’s strategy to build a trusted, modern tax administration system, an update on tax administration and maintenance in Spring 2023, and how we tackle tax avoidance and evasion

A definition of each of the customer groups can be found in Chapter L of the ‘Methodological annex’.

Main findings

Figure 1.4 shows the tax gap broken down into different customer group for tax years from 2017 to 2018 to 2021 to 2022.

The share of the tax gap attributed to small businesses has increased over the last 5 years, from 40% of the overall tax gap in 2017 to 2018 to 56% in 2021 to 2022.

The shares of the tax gaps for mid-sized businesses and large businesses have both fallen from 18% of the overall tax gap in 2017 to 2018 to 11% in 2021 to 2022.

The share of the tax gaps attributed to wealthy customers and individuals accounts for between 9% to 13% of the overall tax gap in each of the last 5 years.

The share of the tax gap due to criminals accounts for 11% of the overall tax gap in 2021 to 2022.

Figure 1.4 Tax gap by customer group – share of tax gap

Notes for Figure 1.4

1. The full data series can be seen in the online tables.

Measurement methods

There are several approaches to measuring tax gaps. VAT and excise duty gaps are mainly estimated using a ‘top-down’ approach, by comparing the implied tax due from consumer expenditure data with tax receipts. Most other components are estimated using a ‘bottom-up’ approach, based on HMRC’s operational data and management information such as:

• random enquiry programmes – these are full enquiries opened by HMRC compliance officers into a randomly selected sample of taxpayers, and

• statistical methods – unlike random enquiry programmes these use risk-based enquiries that are not representative of the whole population, and require statistical methods to scale up the results to the whole population.

The way we estimate each tax gap component and the data we use is set out in the relevant chapters, with additional information in the ‘Methodological annex’.

Top-down estimates

A ‘top-down’ approach uses independent, external data on consumption to estimate the tax base. The tax base is used to calculate a theoretical value of tax that should be paid. The actual amount of tax paid is subtracted from this theoretical value to estimate the tax gap.

Bottom-up estimates

In ‘bottom-up’ approaches, HMRC uses internal data and operational knowledge to identify areas of potential tax loss. Different methods and data sources are used to estimate how much tax is lost within each area. These estimates are combined to estimate the tax gap.

The total tax gap is estimated using some established statistical methods and some experimental methods. Experimental methodologies are used to produce illustrative estimates where there is no direct measurement data. For these tax gap components, we use the best available data, simple models and assumptions to build an illustrative estimate of the tax gap.

Main findings

Figure 1.5 shows the share of the tax gap by type of methodology.

84% of the ‘Measuring tax gaps 2023 edition’ tax gap is estimated using established methods. The remaining 16% is estimated using experimental methods. A higher proportion of the tax gap in ‘Measuring tax gaps 2023 edition’ is based on established methods compared to the 79% in ‘Measuring tax gaps 2022 edition’ when COVID-19 impacted data collection and consistency in the time series.

Figure 1.5: Share of tax gap by type of methodology in previous Measuring tax gaps editions

Measuring tax gaps edition	Experimental methodology	Established methodology
MTG19	24%	76%
MTG20	15%	85%
MTG21	14%	86%
MTG22	21%	79%
MTG23	16%	84%

Note for Figure 1.5

1. MTG stands for ‘Measuring tax gaps’.
2. Figures may not appear to sum due to rounding.
3. ‘%’ refers to percentage of the total tax gap.

Accuracy and reliability

Our tax gap estimates are official statistics produced to the highest levels of quality and adhere to the UK Statistics Authority’s Code of Practice for Statistics framework. This framework ensures statistics are trustworthy, good quality, valuable and provide producers of official statistics with the detailed practices they must commit to when producing and releasing official statistics.

A ‘Measuring tax gaps’ background quality report accompanies this statistical release, providing information about the quality of outputs, as set out by the Code of Practice for Statistics. This sets out the measures we have taken to ensure the accuracy and reliability of the tax gap estimates.

Uncertainty

Uncertainty relates to a range of factors that can affect the accuracy and robustness of a statistic, including the impact of measurement or sampling error (related to sample surveys) and all other sources of bias and variance that exist in a data source.

To evaluate the uncertainty of our tax gap estimates in a systematic and transparent way, we assign an uncertainty rating for each tax gap component in Table 1.1, ranging from ‘very low’ to ‘very high’. The rating is derived from assessing the uncertainty arising from 3 sources: the model scope, the methodology used and the data underpinning the estimate.

In assessing model scope we evaluate each estimate’s methodology capture of the appropriate tax base and its coverage of the entire potential taxpayer population. For the methodology, we evaluate the complexity and challenges of the model including model volatility. In assessing the data underpinning the estimates, we consider data suitability and its impact and sensitivity on the final outputs.

More information on the tax gap uncertainty assessment can be found in the ‘Methodological annex’.

The distribution of uncertainty ratings has changed in each recent Measuring tax gaps edition since their introduction in ‘Measuring tax gaps 2021 edition’.

Main findings

Figure 1.6 shows the uncertainty ratings for all tax gap components. In ‘Measuring tax gaps 2023 edition’, 21% of the overall tax gap estimate is attributed to models with a ‘low’ uncertainty rating. This is down from 64% in ‘Measuring tax gaps 2021 edition’ and 31% in the ‘Measuring tax gaps 2022 edition’.

Over half (51%) of the tax gap estimate is attributed to models with a ‘medium’ uncertainty rating, higher than the 40% in ‘Measuring tax gaps 2022 edition’ and 19% in the ‘Measuring tax gaps 2021 edition’.

The proportion of the tax gap estimate with ‘high’ and ‘very high’ uncertainty ratings is 13% and 15%, in ‘Measuring tax gaps 2023 edition’ compared with 12% and 18% in ‘Measuring tax gaps 2022 edition’ and 6% and 12% in ‘Measuring tax gaps 2021 edition’.

Table 1.1. shows the VAT gap is the only component with a ‘low’ uncertainty rating. The VAT uncertainty rating is ‘low’ due to the strength of the methodology scope which captures all the required goods and services subject to VAT, and uses independent ONS data consistent with National Accounts.

‘Very high’ uncertainty is given to stamp duty reserve tax, other excise duties and other taxes, levies and duties as they are based on experimental methodologies and without direct measurement data.

Most of the excise gap components are given a ‘high’ uncertainty rating due to a combination of modelling and assumptions used in the methodology.

The ‘medium’ uncertainty rating tends to be provided for the components of Income Tax, PAYE and Corporation Tax - in particular for the small businesses and individuals customer groups. The models are based on random enquiry programmes where the model scope is generally strong. However, there is inherent uncertainty due to estimates being based on a random sample of the population and factors such as random enquiry cases still being ongoing for recent tax years.

Figure 1.6: Share of tax gap by uncertainty rating compared to previous editions

Measuring tax gaps edition	Very low	Low	Medium	High	Very high
MTG21	0%	64%	19%	6%	12%
MTG22	0%	31%	40%	12%	18%
MTG23	0%	21%	51%	13%	15%

Notes for Figure 1.6

1. MTG stands for ‘Measuring tax gaps’.
2. Figures may not appear to sum due to rounding.
3. ‘%’ refers to percentage of the total tax gap.

Further information on the uncertainty rating assessment of different methodologies can be found in the ‘Methodological annex’.

Tax gap: detailed breakdown

Table 1.1: Tax gap components 2021 to 2022 estimates

Tax	Type	Component	Percentage tax gap	Absolute tax gap (£bn)	Uncertainty rating
VAT	Total VAT	Total VAT	5.4%	7.6	Low
Excise duty	Tobacco duty	Cigarette duty	11.0%	1.0	High
Excise duty	Tobacco duty	Hand-rolling tobacco duty	33.5%	1.2	High
Excise duty	Tobacco duty	Total tobacco duty	17.7%	2.2	-
Excise duty	Alcohol duty	Spirits duties	1.5%	0.1	High
Excise duty	Alcohol duty	Beer duty	11.3%	0.5	High
Excise duty	Hydrocarbon oils duty	Hydrocarbon oils duty	0.5%	0.1	Medium
Excise duty	Other excise duties	Other excise duties	6.0%	0.5	Very high
Excise duty	Total excise duties	Total excise duties	6.1%	3.4	-
Income Tax, NICs, Capital Gains Tax	Self Assessment	Non-business taxpayers	4.9%	1.3	Medium
Income Tax, NICs, Capital Gains Tax	Self Assessment	Business taxpayers	18.5%	5.0	Medium
Income Tax, NICs, Capital Gains Tax	Self Assessment	Large partnerships	9.0%	1.6	Very high
Income Tax, NICs, Capital Gains Tax	Total Self Assessment	Total Self Assessment	11.2%	7.8	-
Income Tax, NICs, Capital Gains Tax	PAYE	Small businesses	0.8%	0.6	Medium
Income Tax, NICs, Capital Gains Tax	PAYE	Mid-sized businesses	0.5%	0.5	High
Income Tax, NICs, Capital Gains Tax	PAYE	Large businesses	1.1%	1.9	Very high
Income Tax, NICs, Capital Gains Tax	Total PAYE	Total PAYE	0.8%	2.9	-
Income Tax, NICs, Capital Gains Tax	Total avoidance	Total avoidance	-	0.5	Very high
Income Tax, NICs, Capital Gains Tax	Hidden economy	Ghosts	-	0.6	High
Income Tax, NICs, Capital Gains Tax	Hidden economy	Moonlighters	-	0.8	Medium
Income Tax, NICs, Capital Gains Tax	Total hidden economy	Total hidden economy	-	1.4	-
Income Tax, NICs, Capital Gains Tax	Total Income Tax, NICs, Capital Gains Tax	Total Income Tax, NICs, Capital Gains Tax	3.0%	12.7	-
Corporation Tax	Corporation Tax	Small businesses	29.3%	8.4	Medium
Corporation Tax	Corporation Tax	Mid-sized businesses	8.5%	1.5	Medium
Corporation Tax	Corporation Tax	Large businesses	2.2%	0.7	High
Corporation Tax	Total Corporation Tax	Total Corporation Tax	13.3%	10.6	-
Other taxes	Stamp taxes	Stamp Duty Land Tax	1.7%	0.2	Medium
Other taxes	Stamp taxes	Stamp Duty Reserve Tax	1.0%	<0.1	Very high
Other taxes	Total stamp taxes	Total stamp taxes	1.5%	0.3	-
Other taxes	Inheritance Tax	Inheritance Tax	4.7%	0.3	Medium
Other taxes	Landfill Tax	Landfill Tax	18.4%	0.2	High
Other taxes	Other taxes, levies and duties	Other taxes, levies and duties	4.8%	0.8	Very high
Other taxes	Total other taxes	Total other taxes	3.6%	1.5	-
Total tax gap	Total tax gap	Total tax gap	4.8%	35.8	-

Notes for Table 1.1

1. The percentage tax gap is the tax gap pound value as a proportion of theoretical tax liability, where theoretical tax liability is defined as the tax gap plus the amount of tax actually received. Estimates are rounded to the nearest 0.1%.
2. All excise duty gap estimates include duty only.
3. ‘Other excise duties’ includes betting and gaming duties, cider and perry duties, spirit-based ready-to-drink duties and wine duties.
4. Ghosts are individuals whose entire income is unknown to HMRC.
5. Moonlighters are individuals who are known to us in relation to part of their income, but who have other sources of income that HMRC does not know about.
6. ‘Other taxes’ includes ‘Other taxes, levies and duties’ (Aggregates Levy, Air Passenger Duty, customs duty, Climate Change Levy, Digital Services Tax, Insurance Premium Tax, Soft Drinks Industry Levy), Landfill Tax and direct taxes (stamp taxes, Inheritance Tax).

Measuring tax gaps tables

A full set of the ‘Measuring tax gaps’ tables and tax gap time series is published on GOV.UK. These have been revised and updated for methodological revisions detailed in this publication up to and including 2021 to 2022.

Revisions to tax gap estimates

Many tax gap component estimates have been revised since ‘Measuring tax gaps 2022 edition’. This is due to improvements in the way they are calculated, the availability of more up-to-date data and projections based on more recent years’ information. These tax gap estimates adhere to the framework for the Code of Practice for Statistics. This code assures revisions or corrections are handled transparently and released as soon as practicable.

Main findings

Figure 1.7 shows the revisions made to the overall tax gap estimates for editions published since the ‘Measuring tax gaps 2019 edition’. This illustrates the uncertainty around the estimation of tax gaps and highlights why they are best used as a long-term indicator of compliance.

Figure 1.7: Revisions to the tax gap as a percentage of total theoretical tax liabilities compared to previous editions

Note for Figure 1.7

1. MTG stands for ‘Measuring tax gaps’.

Table 1.6 in the online tables summarises the revision for each component of the tax gap.

The main reasons for the revisions include updated information on consumer expenditure from the Office for National Statistics to produce VAT gap estimate, additional information through completed random enquiry programmes and methodological improvements.

Further information on the revision for each component of the tax gap is available within the relevant chapters:

• VAT revisions

• Excise revisions

• Income Tax, National Insurance contributions and Capital Gains Tax revisions

• Corporation Tax revisions

• Other taxes revisions