Quality and methodology information report (December 2023)
Updated 7 December 2023
© Crown copyright 2023
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This publication is available at https://www.gov.uk/government/statistics/background-quality-report-tax-relief-statistics/quality-and-methodology-information-report-december-2023
1. Introduction
This quality and methodology information report report relates to the Official Statistics publications, Tax relief statistics. The purpose is to provide users with additional information on the methodology used to estimate the cost of the published tax reliefs. It also includes additional considerations for specific tax reliefs.
Separately, HMRC produces a background quality report with information on the quality of the outputs such as data suitability and coverage.
The December 2023 publication provides with the following informative bulletins:
This publication also provides 4 tables:
- table 1: Estimated cost of structural tax reliefs
- table 2: List of structural tax reliefs where cost estimates are unavailable
- table 3: Estimated cost of non-structural tax reliefs
- table 4: List of non-structural tax reliefs where cost estimates are unavailable
2. Structural and non-structural reliefs categorisation
Many tax reliefs are integral parts of the tax system. These reliefs have various purposes, such as to define the scope of the tax or calculate income or profits correctly. These are classified as ‘structural tax reliefs’.
Other reliefs are actively designed to help or encourage particular types of individuals, activities or products in order to achieve economic or social objectives. These are classified as ‘non-structural’ tax reliefs.
The split between ‘structural tax reliefs’ and ‘non-structural tax reliefs’ is not always straightforward, and these categorisations remain under continuous review. Some reliefs have both structural and non-structural purposes. For example, capital allowances can provide relief for commercial depreciation as well as an element of accelerated relief. While the former can be regarded as a structural part of the tax system, the latter is non-structural as it provides additional benefit to business.
Where reliefs combine both structural and non-structural elements, they have been allocated to the category deemed most dominant.
Reliefs are also categorised by the taxes to which they apply, for example, Income Tax and Corporation Tax. Reliefs which apply to more than one tax are in a tab called ‘Multiple tax types’. The publication has been updated to better align with HMRC’s central management of tax reliefs, meaning it focuses on the non-structural tax reliefs.
3. Interpretation of estimates
How to interpret the figures in the publication:
- the figures are estimates of the amount of relief which is claimed and subsequently granted each year
- the estimates do not represent the gain to the exchequer should a relief be abolished because of additional behavioural effects, interactions between reliefs and wider economic impacts of withdrawing relief
- the estimates are shown in nominal £ million
- the estimates should not be compared publication to publication as changes to policy, modelling methodologies, data, and assumptions mean that estimates could be calculated on a different basis year to year
- please refer to the supplementary notes on the tables for additional explanations for specific reliefs
- single-year cost estimates are provided for the latest year that data was available when the costing was undertaken
- the uncertainty rating provided should be considered when using these estimates
- most costs are on an accruals basis unless otherwise stated, that is, they represent the effects on the tax liabilities for each year, not receipts in each year
- some costings are on a National Accounts basis which usually incorporates a time-shifted cash adjustment to ensure costs are recorded as close as possible to the time of the underlying economic activity that generated them
- these tables are classified as Official Statistics, falling outside the scope of National Statistics owing to our forecasting the estimates, and insufficient data
- some tax reliefs are used by a small number of taxpayers. For these reliefs, publishing a cost estimate could possibly allow individual taxpayers to be identified - in these cases we do not report the cost
4. Methodology and data quality
For the majority of reliefs, HMRC estimates the cost using administrative data from taxpayers returns. However, for some reliefs, HMRC does not require information on the use of the relief to be submitted on tax returns as this is not needed for establishing the liability to tax. This may be because the relief is an exemption rather than a deduction from income or profits, for example. In such cases, HMRC uses suitable external information sources, if available, to estimate usage of the relief and thereby its cost.
There are two types of cost estimate presented in this release. HMRC tax relief statistics have historically included multiple-year cost estimates for a subset of reliefs. For reliefs where no estimates were previously published, we have prioritised estimating a single-year cost for non-structural reliefs.
Where the cost is estimated at zero or less than £3 million they are shown as ‘negligible’. The cost estimates have been rounded according to their size, as follows:
- under £100 million - rounded to the nearest £5 million
- over £100 million but under £1 billion - rounded to the nearest £10 million
- over £1 billion - rounded to the nearest £100 million
In the structural and non-structural cost estimates tables, a hyphen in a cell indicates that the relief was not in operation in that particular year, or that we were unable to estimate the costs, in which case we set out why this cost information is available through a resason code. Where there is a hyphen in the number of claimants section, we are not able to estimate the number of claimants.
Previously published tax relief cost estimates may change in future years of the publication, due to revisions to data, methodology, policy changes or new OBR economic determinants.
4.1 Multiple-year cost estimates
The download tables provide estimates of the revenue costs for the 6 years 2018 to 2019 to 2023 to 2024. These estimates are based on information available at 7 December 2023. For many reliefs, estimates of the cost rely on information on tax returns, statistics from other government departments and other data that may not be available for the most recent years at the time the estimates are produced.
For these reliefs, the figures for 2023 to 2024 (and in some cases earlier years) are projections based on previous years’ outturn data. The forecast or projection estimates are indicated with an asterisk.
For multi-year cost estimates, we have included information on the type of data and methodology used for estimating the cost of each relief. The ‘Data and methodology’ column sorts reliefs into the categories below:
- there is no administrative data on the relief, it is estimated entirely using alternative data
- administrative data on the use of the relief, with significant assumptions applied
- administrative data on the use of the relief, with minimal assumptions applied
In subsequent annual updates, forecasted or projected figures will normally be replaced with estimates based on actual data as those estimates become available. Where estimates based on actual data change materially from one year to the next, commentary is provided explaining the main reasons for the changes.
The tax rates and allowances used in the estimates include the impact of decisions in the 2023 Autumn Statement. The forecasts reflect the OBR’s November 2023 Economic and Fiscal Outlook.
4.2 Single-year cost estimates
The publication contains single-year estimates for tax reliefs which were previously un-costed, in many cases this was due to data limitations. This means that most of the reliefs which are newly costed since 2019 have no readily available administrative data. Where possible, we have used suitable publicly available external data, or data from other government departments.
Where external data has been used, it is not always targeted or comprehensive. In many cases, relevant data is not directly available and so we have used proxy data and/or made assumptions. As a result, we have provided an uncertainty rating with each cost estimate. Our assessment of the uncertainty level is broad-based and considers the quality of the data used and the assumptions made. Our approach is summarised below:
Table 1: Single-year cost estimate uncertainty ratings
| Uncertainty | Data and modelling approach |
|---|---|
| Low | High-quality, targeted and comprehensive data from administrative or external sources. Assumptions have strong underlying rationale and can be verified using good quality independent data. |
| Medium | Basic data, incomplete in a few instances, which may be from external sources. Some assumptions are used and can be verified only to a limited extent. |
| High | Very little, incomplete or poor-quality data. Largely assumption-based and more challenging to verify. |
This release provides single-year cost estimates for the latest year for which data is available. Cost estimates which apply to the years 2019 to 2020 and earlier could have significantly different cost in 2020 to 2021 due to the impact of COVID-19. We have indicated within the release where estimates have been particularly affected by this.
The aim of producing these single-year cost estimates is to increase transparency about the cost of non-structural tax reliefs where cost estimates were previously unavailable.
Although there is uncertainty surrounding the estimates, we have published cost estimates wherever possible, unless the estimate is potentially misleading to users. When deciding whether a relief cost estimate would be suitable for publication, we considered the uncertainty rating and sensitivity to specific assumptions.
4.3 Uncosted Reliefs
There are a number of reliefs in the publication for which no cost is currently available. In many cases this is due to a lack of administrative or good-quality targeted data available on which to base an estimate. HMRC has prioritised additional analytical resource to undertake a multi-year project to provide more public information on the costs for reliefs where none are currently published, prioritising non-structural reliefs.
Where reliefs lack administrative data, this can be because HMRC does not require information on the use of the relief on tax returns to establish tax liability. This may be because the relief is an exemption rather than a deduction from income or profits.
In such cases, HMRC uses suitable external information sources, if available, to estimate usage of the relief and thereby its cost. In general, HMRC avoids increasing taxpayers’ administrative burdens by requiring information to be submitted solely for statistical purposes unless the benefit of this would be expected to outweigh the cost.
The tax reliefs for which no estimate of cost is available are analysed by area of the tax system for reference. The table also provides a categorisation indicating the reason why the cost information is not available, as follows:
Table 2: Uncosted relief reason codes
| Reason code | Reason explanation |
|---|---|
| A | Information on the usage of this relief is not required in tax returns and cannot be reliably estimated from other data sources, and the cost of collection for statistical purposes is disproportionate. |
| B | Information on the usage of this relief is reported to HMRC, but the relevant data is not held in a centralised form, and the cost of gathering for statistical purposes is disproportionate. |
| C | Information on the usage of this relief is available, but the cost is not quantifiable as it is dependent on other unknown factors. |
| D | Introduction of the relief is too recent for any data to be available. |
| E | Exemption under the Freedom of Information Act, such as Data Protection. |
| F | Other (reason stated in each case). |
| N | We are reviewing what data is available, reason code to be allocated. |
| * | Data is available and requires further analysis. |
5. Quality considerations affecting the estimates
In the sections below, we outline information to consider when looking at the specific reliefs or tax heads mentioned.
5.1 VAT reliefs
For most VAT reliefs, HMRC administrative data cannot be used to estimate costs, as VAT returns do not include information at a product level (as this would impose an excessive and unnecessary administrative burden on businesses). Instead, external economic and market data is used to estimate the value of the supplies to which the VAT reliefs apply.
The primary data sources used for estimates of costs of VAT reliefs in this publication are:
- for consumer expenditure, the Consumer Trends datasets produced by the Office for National Statistics: Consumer trends, UK - Office for National Statistics
- for business expenditure, the intermediate consumption sections of the supply-use tables published by the Office for National Statistics: Input-output supply and use tables - Office for National Statistics (ons.gov.uk)
Both these official statistics datasets are balanced with the national accounts and are considered to be the most reliable sources of data on expenditure at the levels of categorisation they provide. These data sources are supplemented with other datasets as required for more granular estimation, and for some reliefs more specific external data is used in place of the general Consumer Trends and Supply Use datasets.
5.2 Inheritance tax reliefs
For Inheritance Tax reliefs, estimates are based on the details of those estates which notify HMRC of wealth transfers through Inheritance Tax returns. Inheritance tax returns often do not need to be completed for estates where some types of wealth have not been transferred, and as such a grant of probate (confirmation in Scotland) was not required.
5.3 Homeworkers allowance
Employers can make tax free payments for the additional household costs incurred by employees who work at home under homeworking arrangements. Where an employer does not reimburse these costs, providing certain conditions are met, employees can claim tax relief on a flat rate allowance of £6 per week or on the actual costs incurred where evidence is provided. The circumstances under which a tax free payment can be made by the employer are less restrictive than the conditions that need to be met where the employee claims tax relief.
The costs have increased in recent years due to the pandemic and mandated working from home which has resulted in an increased number of claims. There was also an operational easement to allow annual claims.
The cost estimates for this relief can be found in the structural cost estimates table under the income tax tab.
5.4 Employee Share Schemes
Through HMRC’s production and quality assurance processes, a potential data issue was identified which could impact the Employee Shares Schemes Statistics. The cost of this relief has been removed from the publication this year while further quality assurance continues. For more information, see the Employee Share Schemes Statistics page.
5.5 SDLT reliefs
HMRC has made improvements to the methodology for estimating Stamp Duty Land Tax reliefs, effective from 2021 to 2022. This revision has mostly improved relief estimates relating to ‘linked transactions’ (where more than one transaction is part of a single arrangement between the same buyer and seller) and improved how the theoretical tax liability is calculated in the absence of a relief. These have resulted in uplifts to the relief estimate and the relief count. The changes particularly affect two reliefs: Charities Relief and Registered Social Landlords relief (noon-structural reliefs), Group Relief and Pre-completion Transaction (structural reliefs). The estimates for previous financial years have been uplifted in proportion to the uplift for 2021 to 2022 and 2022 to 2023, however these estimates will be less reliable.
Additionally, HMRC has identified an analytical error in the 2021 to 2022 and previous financial years’ Multiple Dwelling Relief (MDR) relief count and estimate, which has resulted in the relief count being overestimated and the relief estimate being underestimated. This has been corrected in this publication. HMRC has also improved the data cleansing process for Multiple Dwelling Relief for 2021 to 2022 and 2022 to 2023. The estimates for previous financial years have been uplifted in proportion to the uplift for 2021 to 2022 and 2022 to 2023, however these estimates will be less reliable.