Non-structural tax relief statistics (December 2023)

Question 1

1. Summary

Accepted Answer

The key points from this year’s statistical publication are:

the 104 non-structural tax reliefs for which we have estimates currently in the latest tax year (2022 to 2023) cost £204 billion. This is up £9 billion (5%) from £195 billion in the tax year 2021 to 2022. Tax receipts increased by 11% in the year up to 2022 to 2023, meaning the cost of reliefs as a share of receipts has decreased
Half of the costed non-structural reliefs in this publication cost less than £10 million, whilst the largest 5 non-structural reliefs make up two thirds (£129 billion) of all costed non-structural reliefs
of the total 341 non-structural reliefs, HMRC have now investigated 309, of which 256 have an estimate in this publication
two thirds of reliefs vary by less than 10% on average in terms of their relative proportion of GDP each tax year
The largest new single year costing corresponds to CT - Charitable Donations Relief (including gifts of trading stock to charity) which is estimated to cost £880 million in the tax year 2021 to 2022 (high uncertainty)

Question 2

2. About this publication

Accepted Answer

‘Non-structural’ tax reliefs are those reliefs designed to help or encourage particular types of individuals, activities or products in order to achieve economic or social objectives. This publication covers the latest estimates of the costs of non-structural reliefs in the UK tax system. It also provides detailed analysis of the 36 largest non-structural tax reliefs costing over £500 million in any tax year, examining changes over time, against original forecasts (where possible) and relevant material in terms of distributional impacts and evaluation.

For a full list of non-structural reliefs and their associated cost (where available), see the accompanying statistical tables:

This bulletin does not cover ‘structural reliefs’. For more information on ‘structural’ reliefs, see the latest structural reliefs publication. For more information on the difference between structural and non-structural reliefs as well as further detail on the methodology used for this release, see the accompanying quality and methodology information report.

The figures in this publication are estimates of the amount of relief which is claimed and subsequently granted each tax year in £ million. They do not represent the gain to the Exchequer should a relief be abolished and do not explicitly model additional behavioural responses and wider economic impacts which could result from changes to the reliefs, nor do they consider interactions with other reliefs.

2.1 Progress against external recommendations

HMRC continuously aims to improve its own, and public understanding of the impacts of tax reliefs. 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. This project started in 2019 and will run in two stages over several years.

The first stage involves a comprehensive review of currently available data to provide indicative estimates for the cost of tax reliefs. A full break-down of the progress can be found in table 1. In total, we have published 152 new cost estimates for non-structural reliefs since 2020. We will continue to expand coverage in 2024.

Table 1: Progress on costing previously uncosted reliefs since 2020

Publication	Cost estimate	Unable to estimate cost	Cost estimate withheld due to dominance and disclosure rules	Total
May 2020	45	2	0	47
October 2020	26	3	11	40
May 2021	29	4	12	45
December 2021	17	5	2	24
May 2022	15	5	0	20
January 2023	10	3	1	14
May 2023	5	0	1	6
December 2023	5	0	0	5
Total	152	22	27	201

The second stage identifies those reliefs where HMRC would need to collect or purchase additional data to estimate the costs of the reliefs; 22 of these reliefs have been identified and listed in the associated tables with this bulletin. HMRC intends to make significant progress on the coverage of costed non-structural reliefs during the project. However, there are trade-offs about administrative burdens and collection costs, so there may remain some un-costed reliefs due to data limitations.

2.2 What’s new?

Since the May 2023 publication, this publication has added 5 new costings, covering 6 non-structural relief(s) which had not previously been investigated. Details of these costings can be seen in Table 2 below.

Table 2: New costings for previously uncosted non-structural tax reliefs

Relief name(s)	Relief code(s)	Tax head(s)	Costing type	Note
Charitable Donations
Corporation Tax Charitable Donations Relief	NSU - CT3	Corporation Tax	Single-year	Both of these reliefs have been estimated in a single costing since estimates for each relief cannot be distinguished from the available data.
Gifts of trading stock to charity	NSU - IT_CT25	Income Tax and Corporation Tax	Single-year	Both of these reliefs have been estimated in a single costing since estimates for each relief cannot be distinguished from the available data.
Other costings
Friendly Societies	NSU - CT6	Corporation Tax	Multi-year	This costing provides estimates for tax years 2018 to 2019 to tax years 2022 to 2023 for this previously uncosted relief.
Relief on employer National Insurance contributions for veterans		NICs	Multi-year	This costing is for a new non-structural relief introduced in the tax year 2021 to 2022.
Relief on employer National Insurance contributions for freeport employees		NICs	Multi-year	This costing is for a new non-structural relief introduced in the tax year 2021 to 2022.
Van benefit - exemption of vans with zero emissions		Income Tax	Single-year	This costing provides an estimate for the tax year 2021 to 2022 for this previously uncosted relief.

Due to a potential data issue, cost estimates for the following reliefs have been removed from this publication while further quality assurance continues:

IT/NICs – Approved Company Share Options Plans (CSOP)
IT/NICs – Enterprise Management Incentives (EMI)
IT/NICs – Save As You Earn
IT/NICs – Share Incentive Plan (SIP)

For more information, see the accompanying quality and methodology information report.

Previously we considered that there were 339 non-structural reliefs. We now consider there to be two more bringing the total number of non-structural reliefs to 341. The two new non-structural reliefs are: NICs - Relief on employer National Insurance contributions for veterans and NICs - Relief on employer National Insurance contributions for freeport employees. Of the total 341 non-structural reliefs that exist within the UK tax system, this publication provides either a single or multi-year cost estimate for 256. Of the remaining 85, an estimate has not been provided for the following reasons:

Revealing the estimate could potentially disclose confidential information (27)
We are currently unable to estimate the cost (22, see the accompanying quality and methodology information report for reasons)
The relief has not yet been investigated (32)
The relief has been temporarily withdrawn due to data quality issues (4, see accompanying quality and methodology information report)

2.3 Developing and expanding commentary on the cost and impact of reliefs

Following recommendations from the Public Accounts Committee (PAC) in July 2020, HMRC has committed to ‘improving the available information about the groups and sectors benefitting from significant reliefs’, and to ‘identify and explain significant cost variances within reliefs’. HMRC has confirmed that it has satisfied PAC’s recommendations in the June 2022 Treasury Minutes progress report.

HMRC has continued to make progress in this area in this statistics publication this year by including:

links to and summaries of existing published analysis that may shed light on the distributional impacts and effectiveness of the most significant reliefs
summary statistics highlighting key trends and findings from across the relief costings
updating single-year cost estimates where possible

Question 3

3. Headline statistics

Accepted Answer

3.1 Largest non-structural reliefs

Estimates are available for 104 tax reliefs in the tax year 2022 to 2023, representing tax relief worth £204 billion.

The largest 5 non-structural reliefs in this publication account for around 63% of all non-structural tax reliefs covered in this publication:

CGT Private residence relief providing £36.7 billion of relief, up by £7.7 billion over 5 years
NICs Contributions to, and benefits from, registered pension schemes providing £25.9 billion of relief, up by £8.6 billion over 5 years
IT Registered pension schemes providing £25.4 billion of relief, up by £5.5 billion over 5 years
VAT Food providing £23.3 billion of relief, up by £3.8 billion over 5 years
VAT Construction and sale of new dwellings (includes refunds to DIY builders) providing £17.5 billion of relief, up by £1.6 billion over 5 years

In this section, we have grouped the following tax heads into a “Capital Taxes” category: Inheritance Tax, Capital Gains Tax, Stamp Duty Land Tax, Stamp Duty and Stamp Duty Reserve Tax.

Figure 1: the largest value tax reliefs within each tax head in 2022 to 2023

Figure 1 gives an illustration of the costs of non-structural tax reliefs with a cost estimate for 2022 to 2023. As discussed above, the total cost of non-structural tax reliefs is dominated by the 5 largest reliefs. A full breakdown of the costs of the individual reliefs shown in the above chart is available in the estimated cost of non-structural tax reliefs table.

Figure 2: the aggregate cost (£ billion) and number of non-structural reliefs with estimates available in the tax year 2022 to 2023 by tax head

Figure 2 shows that in the tax year 2022 to 2023 VAT had the highest cost of tax relief by tax head (£69 billion), followed by Capital taxes and Income Tax, with £48 billion and £37 billion of estimated cost of tax reliefs respectively. On the other hand, Corporation Tax shows the lowest amount of tax relief cost at under £17 billion, in line with their small amount of receipts (£68 billion).

Figure 3: the total value of tax receipts (£ billion) in tax year 2022 to 2023 and number of non-structural tax reliefs by tax head

Figure 3 uses data from the OBR’s Economic and Fiscal Outlook (Annex A) on tax receipts to compare against all 341 non-structural reliefs. Where a relief covers multiple tax heads, the relief has been assigned to each respective tax head to provide a scale of the number of reliefs within each tax head. The number of reliefs therefore cannot be summed across tax heads since this would result in duplication.

Figure 3 shows that Income Tax has the greatest number of non-structural reliefs (124) and the highest value of receipts (£250 billion). Outside of the “Other” category, Capital Taxes has the second largest number of reliefs (83), but only the smallest value of receipts (£45 billion). VAT and NICs have a similar number of non-structural reliefs (48 and 44 respectively) and a similar value of receipts (£187 billion and £177 billion respectively).

3.2 Change in the cost of non-structural reliefs over time

The cost of the 104 non-structural reliefs where 6-year estimates are available has increased by £9 billion (5%) to £204 billion in the tax year 2022 to 2023, from the tax year 2021 to 2022. Tax receipts increased by 11% in the year up to 2022 to 2023, meaning the cost of reliefs as a share of receipts has decreased.

Caution should be exercised when looking at year on year changes in the costs of reliefs, in particular during the 2020 to 2021 financial year, which was affected by the COVID-19 pandemic which reduced receipts and therefore the value of many reliefs. Information about year on year increases is included in this publication but in many cases looking at changes over a longer period is a more meaningful comparison.

Looking at changes over time, we have excluded First Time Buyers’ relief and Personal Savings Allowance where comparisons would be misleading. The former was introduced part-way through 2017 to 2018 and distorted in later years by the temporary reduced rates. The latter has a series break in 2018 to 2019 where the methodology has been substantially revised. Additionally, reliefs which do not have a cost estimate in either or both of the 2018 to 2019 and 2022 to 2023 tax years will be excluded from cost change analysis. This leaves us with 98 reliefs.

Figure 4: changes in the outturn estimates for non-structural reliefs as a proportion of GDP from tax year 2018 to 2019 to tax year 2022 to 2023

Tax type	Reduced by more than 10%	Changed by less than 10%	Increased by more than 10%	Total
Capital taxes	8	5	8	21
Income Tax	6	5	9	20
Corporation Tax	4	5	9	18
VAT	5	8	4	17
Other	8	2	3	13
Multiple tax heads	2	1	2	5
NICs	0	0	4	4

Figure 4 shows that non-structural tax reliefs under certain tax heads vary more than others in terms of their cost as proportion of GDP. VAT tax reliefs are the most stable, where 50% of the costed reliefs under the VAT tax head varied by less than 10% on average. Corporation Tax and NICs are the least stable, with respectively 50% and 100% of the costed reliefs under these tax heads increasing by more than 10% in terms of their share of the economy over the past 5 years.

Figure 5: largest percentage changes in the cost of large reliefs in the period 2018 to 2019 to 2022 to 2023

Relief name	Cost change (%)
CT: High-End TV Tax Relief (£605 million increase)	209
VAT: Domestic fuel and power (£4 billion increase)	83
IHT: Residence Nil Rate Band (£810 million increase)	74
NICs: Contributions to, and benefits from, registered pension schemes (£8.6 billion increase)	50
CT: Research and development tax relief: small and medium companies scheme (£1.6 billion increase)	46
NICs: Employment Allowance (£900 million increase)	41
Multiple tax types: Individual Savings Accounts (£1.4 billion increase)	40
CGT: Business Asset Disposal Relief (£1.5 billion decrease)	-56
HOD: Duty rate for marked gas oil and kerosene used as fuel in an engine, other than in a road vehicle or for heating (£1.5 billion decrease)	-63
Multiple tax types: Employer Supported Childcare including workplace nurseries IT (£650 million decrease)	-69

Figure 5 shows the top 10 non-structural reliefs with the largest percentage changes in cost over the last 5 years from tax year 2018 to 2019 to 2022 to 2023. Corporation Tax relief for high-end TV production has had the largest percentage change over this time, increasing by 204% (£510 million). Tax relief for employer supported childcare including workplace nurseries has seen the largest percentage decrease, decreasing by 61% (£570 million).

3.3 Single-year cost estimates

Where HMRC does not produce multi-year estimates we look at whether single-year estimates are possible. Since committing in 2019 to publish cost information for more reliefs, we have published a further 152 non-structural cost estimates where reliefs were previously uncosted. Around half of these cost estimates are negligible (Figure 6).

Each cost estimate has been assigned an uncertainty level. Our assessment of the uncertainty level is broad-based and considers the quality of the data used and the assumptions made, see the accompanying quality and methodology information report for more details.

Figure 6: number of reliefs estimates with a single-year costing by uncertainty rating

Cost band	Low	Medium	High	Total
Negligible (<£3 million)	33	19	24	76
£3 million < x ≤ £25 million	5	15	13	33
£25 million < x ≤ £50 million	3	2	10	15
£50 million < x ≤ £75 million	1	1	0	2
£75 million < x ≤ £100 million	0	0	5	5
£100 million < x ≤ £250 million	2	4	2	8
£250 million < x ≤ £500 million	0	2	1	3
£500 million < x ≤ £1 billion	0	1	3	4
>£1 billion	0	2	1	3

The following reliefs have been estimated for the first time in this publication:

CT - Corporation Tax Charitable Donations Relief (including gifts of trading stock to charity) providing £880 million in the tax year 2020 to 2021 (high uncertainty)
A negligible estimate for IT - Van benefit - exemption of vans with zero emissions in the tax year 2021 to 2022 (low uncertainty)

The following reliefs have a single year cost estimate over £500 million:

Income Tax and NICs - Employer provision for death or retirement benefit (£7.8 billion in 2020 to 2021)
HOD - Kerosene used as heating fuel (£2.4 billion in 2017 to 2018)
IT - Compensation awards for personal injury (£1.3 billion in 2019 to 2020)
VAT - Vehicles and other supplies to disabled people [not including vehicles] (£1 billion in 2016 to 2017)
VAT - Certain ships and aircraft (£940 million in 2019 to 2020)
CT - Corporation Tax Charitable Donations Relief (£880 million in 2021 to 2022)
CGT - Employee-ownership trusts (£600 million in 2021 to 2022)

Additionally, Employee Ownership Trusts (EOT) Capital Gains Tax relief has been updated for this publication as the estimated cost of the relief has increased due to greater usage of EOTs in recent years (£600m in 2021 to 2022). This value has replaced the previously published single-year costing and was estimated to be £130m in 2019 to 2020.

Question 4

4. Methodology and quality assurance

Accepted Answer

In December 2023 we published a new methodology and quality information report for all tax reliefs statistics (structural and non-structural). For information on the data and methods used to produce estimates within this bulletin and the accompanying statistical tables, see the accompanying methodology and quality information report.

We are committed to continuously improving the Official Statistics we publish. A panel, led by senior HMRC analysts, was set up in 2018 to review the methodology of reliefs on a rolling basis. Our quality assurance processes were reviewed in October 2020 and we have in place checks to minimise the risk of error and a rigorous quality assurance review process. The publication is also peer-reviewed by different team members and overseen by senior analysts including the team’s senior statistician.

In May 2022 we published a new background quality report for the tax relief statistics.

Question 5

5. Detailed analysis for the most significant non-structural tax reliefs

Accepted Answer

For the 36 large non-structural tax reliefs worth more than £500 million, the following section explores the changes in costs over time (in cash terms and as a share of nominal GDP). Using changes in cash terms needs careful interpretation, as the cost will tend to rise and fall in line with the underlying economic activity to which the relief applies.

Using changes in the share of nominal GDP provides one proxy to abstract from changes in underlying activity, to identify underlying changes in behaviour etc. The GDP data is taken from Table 1.4 of the November 2023 Office for Budget Responsibility Economic and fiscal outlook - supplementary economy tables.

Nominal GDP only approximately and indirectly captures the change in the underlying economic activity being relieved by assuming that some of the change in the economic activity is in line with the wider economic growth and economy-wide inflation; it also does not account for any structural changes to the tax system affecting the particular tax relief.

Where available, detailed commentary on the reasons for changes in costs against original forecasts are all captured in the comparison of forecast costs to outturn section.

The cost (£ million) and number of claimants estimates given in the following tables are outturn data except where followed by an asterisk (*), which indicates that that estimate is a forecast.

Detailed analysis is available for the following reliefs:

Table 3: Large reliefs with detailed analysis within this publication

Tax head	Relief
Capital Gains Tax	Business Asset Disposal Relief
Capital Gains Tax	Private residence relief
Corporation Tax	Capital allowances: ring-fence oil business trades, first-year capital allowances for plant or machinery
Corporation Tax	Film tax relief
Corporation Tax	High-End TV Tax Relief
Corporation Tax	Patent box
Corporation Tax	Research and development tax relief: R&D Expenditure Credit
Corporation Tax	Research and development tax relief: small and medium companies scheme
Hydrocarbon Oil Duties	Duty rate for marked gas oil and kerosene used as fuel in an engine, other than in a road vehicle or for heating
Income Tax	Charitable donations
Income Tax	Enterprise Investment Scheme (EIS) - Income Tax Relief
Income Tax	Exemption for the first £30,000 of a termination award that would otherwise be chargeable as specific employment income
Income Tax	Marriage Allowance
Income Tax	Personal Savings Allowance (PSA)
Income Tax	Registered pension schemes
Income Tax and Capital Gains Tax	Individual Savings Accounts
Income Tax and Corporation Tax	Capital allowances - annual investment allowance
Income Tax and NICs	Employer Supported Childcare including workplace nurseries IT
Inheritance Tax	Business property relief
Inheritance Tax	Gifts to charities
Inheritance Tax	Residence Nil Rate Band
Inheritance Tax	Transfers between Spouses and Civil Partners
NICs	Contributions to, and benefits from, registered pension schemes
NICs	Employment Allowance
NICs	Relief on employer National Insurance contributions for employees under 21
Stamp Duty Land Tax	First Time Buyers’ Relief
VAT	Construction and sale of new dwellings (includes refunds to DIY builders)
VAT	Domestic fuel and power
VAT	Domestic passenger transport
VAT	Drugs and supplies on prescription
VAT	Food
VAT	The VAT Zero rate for children’s clothing and protective footwear and helmets
VAT	VAT registration threshold
VAT	Vehicles and other supplies to disabled people [vehicles only]
VAT	Water and sewerage services
VAT	Zero rate for printed matter and e-publications

5.1 Capital Gains Tax - business asset disposal relief

Description

Certain disposals chargeable to CGT by individuals and qualifying trustees of all or part of a business are charged at 10% (up to lifetime limit of £1 million of gains as of 6 April 2020). The relief is typically available when disposing of all or part of your business. Cost estimates and volumes for BADR also include claims for Investors’ Relief as the two reliefs cannot be separated in the data at present. Investors’ Relief claims make up only a very small proportion of the totals presented in the tables.

Objective: to encourage genuine risk takers and entrepreneurs to start up or invest in their own personal company over the long term.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	2,700	2,800	1,200	1,200	1,200*	1,500*
Cost (% GDP)	0.124%	0.125%	0.058%	0.051%	0.047%*	0.055%*
Number of claimants	47,000	47,000	47,000	47,000	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The increase in cost between 2018 to 2019 and 2019 to 2020, as well as the forecast increase between 2022 to 2023 and 2023 to 2024, directly reflect increases in the value of gains realised, on which tax is liable at the Business Asset Disposal Relief (BADR) rate. This in turn was largely the result of equity price movements.

The sharp fall in 2020 to 2021 reflects the government’s Budget 2020 announcement to lower the BADR lifetime limit from £10 million to £1 million, implemented from 11 March 2020. Eligible disposals made on or after 11 March 2020 are affected, leading to a small impact for the 2019 to 2020 tax year.

The 2022 to 2023 and 2023 to 2024 costings are a forecast based on previous years’ actual data and the profile of the latest CGT forecast.

Cost estimates and volumes for BADR also include claims for Investors’ Relief as the two reliefs cannot be separated in the data at present. Investors’ Relief claims make up only a very small proportion of the totals presented in the table and chart. The 2019 to 2020 tax year was the first year that we saw claims of Investors’ Relief, first introduced in 2016.

Distributional analysis

From 11 March 2020, the lifetime limit for the Business Asset Disposal Relief (BADR) was reduced from £10 million to £1 million. HMRC Capital Gains Tax statistics show that 7% of CGT came from disposals that qualified for the relief, a decrease from 8% in the previous year. BADR was claimed by 47,000 taxpayers on £12.6 billion of gains in the 2021 to 2022 tax year, resulting in a total tax charge of £1.2 billion.

Gains eligible for BADR are concentrated amongst individuals who have larger gains. Around two thirds of gains and tax paid at the BADR rate came from the 21% of individuals with qualifying gains of £500,000 or more.

See the additional distributional analysis tables for more insight into the distributional impact of the relief in 2019 to 2020.

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.2).

Forecast information

There is no published forecast cost for BADR or Investors’ Relief alone. When the new tax rate for entrepreneurs was announced at Spring Budget 2008, the published forecast cost of Business Asset Disposal Relief (then Entrepreneurs’ Relief) was combined with several other Capital Gains Tax reforms. These figures are not comparable to current estimates of the outturn cost of the relief.

5.2 Capital Gains Tax - private residence relief

Description

Gains on the disposal of a residence is exempt from CGT to the extent it has been used as the person’s only or main residence.

Objective: to encourage home ownership and mobility of labour.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	29,000	28,300	30,100	37,100	36,700*	31,500*
Cost (% GDP)	1.334%	1.261%	1.444%	1.571%	1.438%*	1.156%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of the relief and the share of GDP are based on outturn data on the value of UK property transactions and substantial assumptions until 2021 to 2022 and is grown in line with OBR determinants for property prices and transactions the years after (2022 to 2023 and 2023 to 2024). A negative forecast for property prices and transactions contributes to the fall in cost in 2023/24 but is offset to a degree by the reduction of the CGT Annual Exempt Amount to £6,000 in the same year.

The estimated cost of this exemption from capital gains tax does not represent the yield if this exemption were to be abolished, as consequential behavioural effects would substantially reduce yield.

Distributional analysis

Homeowners receive this relief when they sell their main home. The Department for Levelling up, Housing and Communities’ (DLUHC) English Housing Survey (EHS) for 2021 to 2022 shows that 15.6 million out of a total 24.2 million households (64%) in England were owner-occupiers.

The EHS also reported that home ownership in 2020 to 2021 was higher among older age groups, with 74.5% of homeowners being over 45 years old and only 0.7% under 24.

Statistics published by the Office for National Statistics (ONS) show that property ownership rates increase as income increases.

Evaluative summary

An evaluative summary of this relief was provided in the December 2021 Non-structural Tax Reliefs publication (section 7.1).

Forecast information

There is no original cost forecast for this relief because it predates HMRC published estimates.

5.3 Corporation Tax - capital allowances: ring-fence oil business trades, first-year capital allowances for plant or machinery

Description

Accelerated rate (100%) of capital allowance for expenditure by a company on plant or machinery for use wholly in a ring-fence trade.

Objective: to encourage investment to maximise the economic recovery of the UK’s oil and gas resources.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	1,400	1,700	1,200	1,300	1,000*	1,300*
Cost (% GDP)	0.064%	0.076%	0.058%	0.055%	0.039%*	0.048%*
Number of claimants	150	150	150	150	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The costings show the impact of capital allowances used to reduce taxable profits - hence they do not include capital allowances that generate taxable losses which can be carried forwards or backwards against profits from other years or surrendered as group relief.

The profile reflects changes in energy prices and hence profitability of relief claimants but also the changes made in capital investment. Energy prices collapsed in 2020 due to COVID-19 before recovering again from mid-2021. They spiked in early 2022, particularly for gas, following the Russian invasion of Ukraine but have since fallen back. But they remain above long term ‘normal’ levels.

Capital investment was flat from 2017 to 2019, dropped by a third in 2020 and fell further in 2021. This reduction partially offset the impact of a higher proportion of capex being set against profits due to the improved profitability seen in 2021.

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.3).

External data sources

The external data sources used to calculate this estimate are World Bank Commodity Markets for oil prices and North Sea Transition Authority data centre for information on North Sea investment data.

Forecast information

The published forecast cost for first-year plant and machinery capital allowances for Oil and Gas Ring Fence trades from its introduction at Budget 2002 covers the years 2002 to 2003 to 2004 to 2005. This period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures are not comparable.

In addition, the forecast cost of the relief when it was introduced was combined with the revenue impact of introducing the 10 per cent supplementary charge, and therefore the forecast figures are not equivalent to current estimates of the outturn cost of the relief.

5.4 Corporation Tax - film tax relief

Description

Film production companies can claim additional corporation tax on tax relief for film production expenditure in the UK. Companies not making a profit may be able to surrender the relief and receive tax credit.

Objective: to encourage the production of films in the UK.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	585	625	415	515	725*	625*
Cost (% GDP)	0.027%	0.028%	0.02%	0.022%	0.028%*	0.023%*
Number of claimants	745	830	670	670	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

Companies have up to two years after the end of their accounting period to make a claim for film tax relief. The cost for 2021 2022 is derived using partial outturn data and includes an uplift factor to account for claims not yet received by HMRC. The cost estimates for 2022 2023 and 2023 2024 are forecasts.

The cost of film tax relief had grown steadily up to the 2019 to 2020 tax year, however the number of claimants and cost of the relief fell sharply in the tax year 2020 to 2021. This is primarily due to the effects of the Covid-19 pandemic. There has been some recovery in the cost of relief in the 2021 to 2022 tax year, however the number of claimants has remained at the same level. This reflects the increase in high-budget productions being located in the UK in recent years. This is in line with recent statistics published by the British Film Institute (BFI).

Distributional analysis

Analysis by HMRC, published within the Creative Industries official statistics, shows that in recent years more than half of the total cost on a receipts basis has come from a small number of large claims over £5m. In the 2021 to 2022 tax year, over two-thirds of the relief related to claims of over £5m.

HMRC’s Creative Industries Official Statistics provides information about the number of films, claims, number of companies and amount claimed each year.

Evaluative summary

A recent evaluation of the impacts of Creative Industry tax reliefs, including Film tax relief, was published in November 2022.

Forecast information

Film tax relief is included in the OBR’s corporation tax credits forecast in the Economic and fiscal outlook but the forecast for the cost of the Film tax relief is not published separately.

5.5 Corporation Tax - high-end TV tax relief

Description

Television production companies can claim additional corporation tax relief on producing high-end TV programmes in the UK. Companies not making a profit may be able to surrender the loss and receive a tax credit.

Objective: to encourage the production of high-end television programmes in the UK.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	290	465	360	830	895*	965*
Cost (% GDP)	0.013%	0.021%	0.017%	0.035%	0.035%*	0.035%*
Number of claimants	220	280	295	380	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of high-end TV (HETV) tax relief has been increasing until the 2019 to 2020 tax year. This was mainly due to claims for large budget productions which had been expanded rapidly. The number of claimants and cost of the relief fell sharply in tax year 2020 to 2021, primarily due to the effects of the Covid-19 pandemic. The cost of HETV tax relief increased sharply in the 2021 to 2022 tax year. This is in part due to a recovery from the Covid-19 pandemic, but also an increase in claims for high-value TV productions, including single-episodic shows produced for streaming platforms. This increase is in line with statistics published by the BFI, which showed a substantial increase in TV production expenditure in the UK as a result of inward investment.

Distributional analysis

Analysis by HMRC, published within the Creative Industries official statistics, shows that in recent years more than half of the total cost on a receipts basis has come from a small number of large claims over £2m.

HMRC’s Creative Industries Official Statistics provides information about the number of High-End TV, claims, number of companies and amount claimed each year.

Evaluative summary

A recent evaluation of the impacts of Creative Industry tax reliefs, including HETV tax relief, was published in November 2022.

Forecast information

High-End TV tax relief is included in the OBR’s corporation tax credits forecast in the Economic and fiscal outlook but the forecast for the cost of the High-End TV is not published separately.

5.6 Corporation Tax - patent box

Description

A reduced corporation tax rate for profits from patents.

Objective: to incentivise companies to retain and commercialise existing patents, develop new products and maintain the UK’s position as a world leader in patented technologies.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	1,200	1,200	1,200	1,400	1,500	2,600*
Cost (% GDP)	0.055%	0.053%	0.058%	0.059%	0.059%	0.095%*
Number of claimants	1,575	1,600	1,610	1,510	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The relief was phased in gradually from 2013 to 2014 to 2017 to 2018. In 2016, the government made changes to the design of the Patent Box to comply with new OECD rules for Intellectual Property regimes (the so-called ‘Nexus’ changes). Grandfathering’ rules (GF) allowed companies to claim under the pre-2016 rules in certain circumstances up until July 2021. But businesses will now have to use the profit streaming method and R&D Fraction when calculating the relevant intellectual property profit. This is reflected in the forecast for 2021 to 2022 and for 2022 to 2023, and the impact will be monitored and updated accordingly.

The forecasted increase in the cost for 2023 to 2024 is due to the change in the headline rate of Corporation Tax, from 19 to 25 per cent.

Distributional analysis

HMRC’s Patent Box statistics (September 2022) show that in the tax year 2021 to 2022, it is estimated that 1,510 companies elected into Patent Box. This is slightly lower than in the previous year when the number of companies reached 1,610. Conversely, the value of relief claimed under the Patent Box is estimated to have increased from £1,196 million in the tax year 2020 to 2021 to £1,363 million in the tax year 2021 to 2022. This is primarily driven by large companies claiming more tax relief on average.

Of the companies that elected into Patent Box in tax year 2021 to 2022, 24% were classified as ‘Large’ and these companies accounted for most of the relief claimed (94%). Over half (920) of the companies in tax year 2021 to 2022 were in the Manufacturing sector, accounting for 44% of the relief.

The number of companies claiming relief varies significantly across UK regions. The area with the fewest number of companies was the North East (3% of the total in tax year 2021 to 2022), and the area with the most companies was the South East (15%); although London-based companies claimed the largest amount of relief (44%).

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.5).

Forecast information

The published forecast for Patent Box from its introduction covers the years 2013 to 2014 to 2015 to 2016. This period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures cannot be compared.

5.7 Corporation Tax - research and development tax relief: R&D expenditure credit

Description

Mainly for larger companies, this relief allows them to claim a taxable credit of 20% on their qualifying R&D expenditure.

Objective: to support and incentivise Research and Development (R&D) activity in the UK by companies, helping overcome a market failure (positive externality) which causes underinvestment in R&D. This is to incentivise business investment in R&D in the UK, in order to capture the associated spill-over benefits, such as improved skills.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	2,800	2,700	2,600	2,800	3,100*	4,400*
Cost (% GDP)	0.129%	0.12%	0.125%	0.119%	0.121%*	0.161%*
Number of claimants	8,400	9,600	10,200	10,700	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The Research & Development Expenditure Credit (RDEC), also known as ‘Above the Line’ Credit, was introduced in April 2013. The previous large company scheme continued to run alongside RDEC until April 2016. RDEC is now the only R&D tax relief scheme for large companies. Companies have up to two years after the end of their accounting period to make a claim. The 2021 to 2022 RDEC estimate is based on partial outturn data with an uplift factor to account for returns not yet received by HMRC. The cost estimates for 2022 to 2023 and 2023 to 2024 are forecasts.

The rising costs reflect growth in qualifying R&D expenditure and increased take-up of the relief over time. The larger rise in 2018 to 2019 is partly due to the increase in the RDEC rate from 11% to 12% in January 2018.

In 2020 to 2021 there was a 13% decrease in the cost of support claimed through the RDEC scheme. At the same time, the number of claimants has increased from 8,100 in 2017 to 2018 to 10,700 in 2020 to 2021. This means that RDEC average claim sizes fell in 2020 to 2021. This may be due to the impact of the COVID-19 pandemic, preventing some R&D activity from taking place.

Costs have recovered somewhat in 2021 to 2022 and are forecast to grow rapidly in 2023 to 2024 driven by an increase in the RDEC rate to 20% for expenditure incurred from 1 April 2023 onwards.

Distributional analysis

HMRC’s Research and Development Tax Credits statistics (2023) provide distributional analysis relevant to the R&D RDEC relief, breaking down the number of claims and the amount of relief claimed by UK region, company size and sector.

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.6).

External data sources

There are differences between R&D statistics produced from HMRC data and the other main source, Business Enterprise Research and Development (BERD). These differences are discussed in this ONS article.

Forecast information

RDEC is included in the OBR’s corporation tax credits forecast in the Economic and fiscal outlook, but the RDEC forecast is not published separately.

5.8 Corporation Tax - research and development tax relief: small and medium companies scheme

Description

This is an 86% corporation tax enhancement on qualifying R&D expenditure for small or medium-sized companies. Loss-makers can surrender all or part of their losses for a payable credit at a rate of 10% of the surrendered losses. Certain companies that are R&D intensive may claim a credit at 14.5%.

Objective: to support and incentivise R&D in the UK by SME companies, helping overcome a market failure (positive externality) which causes underinvestment in R&D. This is to incentivise business investment in R&D in the UK, in order to capture the associated spill-over benefits, such as improved skills.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	3,500	4,100	4,200	4,800	5,100*	3,900*
Cost (% GDP)	0.161%	0.183%	0.201%	0.203%	0.2%*	0.143%*
Number of claimants	63,900	71,600	73,600	76,400	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The R&D SME relief allows small or medium-sized enterprises to deduct 186% (previously 230%) of their qualifying costs from their yearly profit, or to claim a 10% (previously 14.5%) tax credit if the company is loss-making. Certain SMEs which are R&D intensive may claim a 14.5% credit. The current rates apply to expenditure incurred from 1 April 2023.

The 2021 to 2022 estimate for the R&D SME scheme is based on partial outturn data with an uplift factor to account for returns not yet received by HMRC. The cost estimates for 2022 to 2023 and 2023 to 2024 are forecasts.

The cost of the SME scheme has been rising sharply in recent years. The number of claimants has increased from 52,200 in 2017 to 2018 to 76,400 in 2021 to 2022. This, together with the growth in qualifying R&D expenditure, has contributed to the rising cost, more than doubling between 2017 to 2018 and 2021 to 2022. Recently, the rates of relief have been reduced as described above. The cost of the scheme is expected to fall in 2023 to 2024 when the fall in relief rates takes effect. Costs up to and including 2022 to 2023 are based on the 130% and 14.5% rates.

Distributional analysis

HMRC’s Research and Development Tax Credits statistics (2023) provide distributional analysis relevant to the R&D SME relief, breaking down the number of claims and the amount of relief claimed by UK region, company size and sector. HMRC will also be publishing research on ‘Regional Information on Corporation Tax Reliefs’ in the near future.

Evaluative summary

The HMRC-commissioned, London Economics Evaluation of the R&D tax relief for SMEs (2020) assessed the direct impacts of this scheme by calculating an ‘additionality ratio’ (the R&D expenditure that would be generated by an increase in the generosity of the scheme relative to the additional cost incurred by Exchequer). The evaluation indicates that, for deduction claims, every £1 foregone in tax revenue stimulates between £0.75 and £1.28 of R&D expenditure. For credit claims, every £1 spent on payable credits is estimated to stimulate between £0.60 and £1.00 of R&D expenditure.

In HMRC’s annual report and accounts for the 2022 to 2023 tax year an updated estimate of error and fraud (E&F) in the R&D schemes for claims received in 2020-21 was published. Details are included in the paper on the department’s approach to the R&D reliefs.

In the resource accounts in the annual report, for illustrative purposes HMRC also considered the possible error and fraud position for 2022 to 2023 expenditure. Details are set out on page 258 of the HMRC annual report and accounts 2022 to 2023.

External data sources

There are differences between R&D statistics produced from HMRC data and the other main source, Business Enterprise Research and Development (BERD). These differences are discussed in this ONS article.

Forecast information

The R&D SME scheme is included in the OBR’s corporation tax credits forecast in the economic and fiscal outlook, but the R&D SME forecast is not published separately.

5.9 Hydrocarbon Oil Duties - duty rate for marked gas oil and kerosene used as fuel in an engine, other than in a road vehicle or for heating

Description

Use of gas oil as motor fuel other than in road vehicles is included in the scope of the partial rebate that also applies to heating use. A partial rebate applies to kerosene used as motor fuel other than in a road vehicle. Includes use in off-road vehicles, rail, inland waterways, transport refrigeration units, generating sets etc.

Objective: some oils and fuels are taxed at a lower (rebated) rate, historically because fuel duty was intended to be a tax on road vehicles. At Budget 2020, the government announced that it would remove the entitlement to use red diesel from most sectors from April 2022. The tax changes will ensure that most users of red diesel use fuel taxed at the standard rate for diesel from April 2022, like motorists, which more fairly reflects the harmful impact of the emissions they produce. Removing most red diesel entitlements will also help to ensure that the tax system incentivises users of polluting fuels like diesel to improve the energy efficiency of their vehicles and machinery, invest in cleaner alternatives, or just use less fuel.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	2,430	2,370	2,205	2,405	890	585*
Cost (% GDP)	0.112%	0.106%	0.106%	0.102%	0.035%	0.021%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of this relief has remained stable throughout most of this period, reflecting relatively flat consumption. The fall in cost from 2019 to 2020 onwards is due to the impact of COVID-19, a mixture of changes to payment timings, policies affecting businesses and emerging economic impacts.

As detailed in an HMRC policy paper, the entitlement to use red diesel has been removed from most users from April 2022. As a result of this, the cost of relief in 2022 to 2023 has fallen substantially.

The cost of relief in 2023-24 is also expected to fall in line with OBR forecasts of gas oil.

Distributional analysis

Distributional analysis was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.8).

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.8).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.10 Income Tax - charitable donations

Description

Exempts charitable donations from income tax (Higher Rate Relief, Payroll Giving, Gifts of Shares and Property, and Tax Repayments - including individual gift aid).

Objective: to support charitable activities, while not providing relief to organisations simply because they are charities.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	2,030	2,110	2,060	2,150	2,510	2,460*
Cost (% GDP)	0.093%	0.094%	0.099%	0.091%	0.098%	0.09%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

Before 2020 to 2021, the cost of this relief generally increased over time. In tax years ending April 2021 and April 2022, the cost of relief fell slightly due to COVID-19.

The increase between 2021 to 2022 and 2022 to 2023 is mainly driven by the Gift Aid aspect of the relief. We estimate that the factors that contributed the most to the increase in Gift Aid are:

existing charities increased the value of their claims
HMRC put on hold more payments than usual in March 2022 for additional checks – most affected claims were paid in April and May 2022, and these now appear in the data for tax year ending April 2023

For tax year ending April 2024, we expect the cost to fall again due to year-to-date payments being lower than in the previous year. This could be due to some relief claims from February and March 2022 not being paid until April to June 2022, making the cost of the relief in the tax year ending April 2023 particularly high.

Distributional analysis

A 2016 research report from Quadrangle, commissioned by HMRC, estimates that 95% of the UK population aged 16 or over donated to charity within the 12 months prior to interview. The research report goes into further detail about those who do and do not claim Gift Aid, which is the biggest component of this relief.

Evaluative summary

An evaluative summary of this relief was published in the December 2021 Non-structural Tax Reliefs publication (section 7.15).

Forecast information

The final year is a forecast based on the year to approximately November. The previous years’ totals are mostly actuals, with some minor elements forecasted, for example, relief on higher rates of Income Tax and Gifts of Shares and Property, which is mostly claimed in arrears.

5.11 Income Tax - enterprise investment scheme (EIS) - income tax relief

Description

Tax relief against the income tax liability for individuals of 30% of the amounts subscribed for shares in early stage qualifying trading companies. The maximum amount subscribed in a tax year on which relief can be claimed is £2 million, but any amount over £1 million must be for shares issued by one or more knowledge-intensive companies.

Objective: to incentivise individuals to make new equity investments in high risk, early stage Small and Medium-sized Enterprises (SMEs) to help them grow and develop.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	520	530	460	640	710*	690*
Cost (% GDP)	0.024%	0.024%	0.022%	0.027%	0.028%*	0.025%*
Number of claimants	37,650	36,550	39,025	45,155	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of EIS has fluctuated slightly year on year, with costs increasing between 2018 to 2019 and 2019 to 2020. The drop in 2020 to 2021 reflects the impacts of COVID-19. Costs then increased sharply in 2021 to 2022 as a result of a strong post-Covid rebound. This is reflective of general strong performance in the financial markets. We forecast costs to increase slightly in 2022 to 2023, and then fall in future years.

Whilst there are fluctuations in the number of investors year to year, National Statistics for EIS show that there were 21,835 investors in 2012 to 2013, rising to 45,155 investors in 2021 to 2022.

Over the period covered in this publication, venture capital schemes (EIS, SEIS, SITR, VCTs) have had a number of legislative changes to incentivize uptake or to manage abuse and avoidance, with corresponding effects on the cost of the schemes.

Distributional analysis

Tables 9 and 10 of HMRC’s EIS statistical tables show that in 2021 to 2022, the total amount of investment on which relief was claimed through Self-Assessment tax returns was approximately £1.83 billion by 45,155 investors.

Around 92% of investors invested less than £100,000, with the remaining 8% investing amounts up to £2 million. Those investing less than £100,000 represent around 44% of the total amount of investment. These estimates are provisional and subject to revision in future publications.

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.9).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.12 Income Tax - exemption for the first £30,000 of a termination award that would otherwise be chargeable as specific employment income

Description

Where payments and benefits on termination of employment are below £30,000, they will not be taxed as employment income. The £30,000 threshold does not apply to any element of the payment that is post-employment notice pay (which is chargeable to income tax).

Objective: to ensure that those who lose their job are supported through the tax system, while limiting the scope of employers avoiding tax by disguising salary or pay-offs as redundancy payments.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	730	850	1,400	1,100	1,000*	1,100*
Cost (% GDP)	0.034%	0.038%	0.067%	0.047%	0.039%*	0.04%*
Number of claimants	-	250,000	600,000	350,000	300,000	300,000

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of the relief showed a large fall in 2018 to 2019, driven by falls in the number, and average level, of eligible redundancy payments. In April 2018 the Government also tightened the scope of the exemption, lowering relief further. The very large spike in the cost and recipients of the relief in 2020 to 2021 and fall thereafter reflects a spike in redundancies during 2020 to 2021 reflecting in part the impact of COVID-19.

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.10).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.13 Income Tax - marriage allowance

Description

Gives a tax reduction to a person whose spouse or civil partner has elected for a reduced Personal Allowance.

Objective: to recognise marriage and civil partnerships in the income tax system by providing a financial benefit where one spouse or civil partner has an income less than their Personal Allowance.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	490	530	560	560	570*	580*
Cost (% GDP)	0.023%	0.024%	0.027%	0.024%	0.022%*	0.021%*
Number of claimants	1,810,000	2,020,000	2,170,000	2,280,000	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of Marriage Allowance has shown consistent steady increases each year as the number of claimants has increased. The estimated cost figures reflect the anticipated take up of the allowance when all backdated claims have been made in future tax years (up to 4 years later).

Estimates of the number of claimants are the latest available and reflect only successful claimants up to that point in time and not the anticipated full take up when all backdated claims have been made in future tax years (up to 4 years later).

Distributional analysis

Distributional analysis was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.12).

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.12).

Forecast information

See the Comparison of forecast costs to outturn section for this information.

5.14 Income Tax - personal savings allowance (PSA)

Description

0% tax rate on taxable savings income. Most taxpayers get PSA of £1000, Higher Rate taxpayers get £500 PSA and PSA is not available to additional rate taxpayers.

Objective: to support individuals to build up savings and improve their financial resilience by removing or reducing tax liabilities on their savings income.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	310	380	270	350*	600*	810*
Cost (% GDP)	0.014%	0.017%	0.013%	0.015%*	0.024%*	0.03%*
Number of claimants	-	10,800,000	8,430,000	11,600,000	12,300,000	13,000,000

The information in the chart is represented in the preceding table.

Commentary on cost change over time

There have been changes to the PAYE data for bank and building society interest. From tax year 2018 to 2019 data on interest from banks and building societies are now received through NPS (National Insurance and PAYE system) and no longer estimated through imputation. Any amounts of savings interest below £1 are rounded down to zero as per HMRC’s tax calculation.

Individuals do not have to report small amounts of savings which do not exceed the PSA. The number of individuals with savings income in excess of their PSA will decrease if interest rates or investment returns decrease. Therefore, changes in interest rates or investment returns have a significant impact on the cost of the PSA. This can be seen in 2022 to 2023 and 2023 to 2024 as interest rates have risen.

Distributional analysis

Distributional analysis was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.13).

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.13).

Forecast information

There is no published forecast cost for the Personal Savings Allowance alone. When the allowance was announced at Spring Budget 2015, the published forecast cost of the Personal Savings Allowance was combined with a measure to increase ISA flexibility. These figures are not therefore comparable to current estimates of the outturn cost of the relief.

5.15 Income Tax - registered pension schemes

Description

Covers net relief including relief on contributions, relief on investment returns, and tax paid in retirement (net of 25% lump sum).

Objective: the purpose of UK tax-relieved pension saving is to provide benefits in retirement for the member and/or their beneficiaries. The government provides pensions tax relief to encourage individuals to take responsibility for retirement planning and to recognise that pensions is longer term than other forms of saving.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	19,900	23,000	25,000	25,300*	25,400*	27,700*
Cost (% GDP)	0.915%	1.024%	1.199%	1.072%*	0.995%*	1.016%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

The methodology used to produce these estimates aligns with that used for Table 6 of the Private pensions statistics publication. There is an accompanying quality report for the Private pension statistics publication. The forecasts for 2022 to 2023 and 2023 to 2024 have been updated to include policy changes, including the planned abolition of the Lifetime allowance and the increase to the Annual allowance announced at the Spring Budget 2023. The projection for 2023 to 2024 does not include any estimated impacts from the NICs rate decrease announced at the 2023 Autumn Statement.

Commentary on cost change over time

The estimated cost of income tax relief on registered pension schemes has increased from 2017 to 2018 to 2021 to 2022, and the cost as a proportion of GDP has also increased in this period. The main drivers of costs during this period could be Automatic Enrolment and wage growth. The minimum contribution rates for Automatic Enrolment increased in April 2019 which increased contributions and hence the cost of relief. According to Workplace pension participation and savings trends, published by the Department for Work and Pensions, between 2019 and 2021, the number of eligible employees participating rose from 19.2 million to 20.0 million. Regarding wage growth, according to an ONS release on Average weekly earnings in Great Britain, average weekly earnings rose by 32.2% between September 2017 and September 2023.

Individual contributions to personal pensions rose in 2021 to 2022 compared to 2020 to 2021. This is likely due in large part to wage growth: according to forecasts by the OBR, labour income rose year-on-year in 2021 to 2022 and are forecasted to rise in 2022 to 2023 and 2023 to 2024. This could feed into higher pensions contributions and therefore increase the cost of relief on contributions. Also, the planned increase to the annual allowance and the abolition of the lifetime allowance will increase contributions and decrease pensions tax charges over this period, which will increase net tax relief on pensions. The lowering of the additional rate threshold in 2023 to 2024 will also increase net tax relief on pensions by pushing more people into the top income tax band.

The full methodology for Table 6 can be found in section 5.2 of the background and methodology document.

Distributional analysis

ONS workplace pensions statistics show that nearly eight out of ten of UK employees had a workplace pension in April 2021.

HMRC Private pension statistics (Table 6) estimate that in 2021 to 2022, 69% of Income Tax relief on total pension contributions was relieved on contributions to personal or private sector occupational schemes, and 49% was relieved on contributions to defined contribution schemes. It is estimated that 6% of Income Tax relief on total pension contributions was relieved at the additional rate of Income Tax, 54% at the higher rate, and 40% at the basic rate.

Evaluative summary

The purpose of UK tax-relieved pension saving is to provide benefits in retirement for the member and/or their beneficiaries. The government provides pensions tax relief to encourage individuals to take responsibility for retirement planning and to recognise that pensions is longer-term than other forms of saving.

HM Treasury published a consultation document in 2015 to seek views on whether pension tax relief should be reformed. The responses to the consultation have also been published.

HMRC commissioned independent research with individuals and employers on pension tax relief in 2015. The research concluded that only 41% of adults correctly believed that the government tops up people’s pension contributions through tax relief. Many people underestimated the amount of tax relief the government provided on pension contributions. Given their lack of awareness, most people were willing to consider an alternative pension tax system, although this would not necessarily change the amount they saved.

Forecast information

Forecasted relief cost figures for 2021 to 2022 and 2022 to 2023 may be revised in the 2024 private pensions publication as further outturn data becomes available. In particular, 2021 to 2022 is currently based partially on both forecasted data and outturn data; further information can be found in Table 6 of the private pension statistics publication.

5.16 Income Tax and Capital Gains Tax - individual savings accounts

Description

Individuals do not pay tax on any income (i.e., dividends, interest and bonuses) they receive from their ISA savings and investments. Individuals do not pay tax on capital gains arising on their ISA investments. Providers do not pay tax on income or capital gains on investments used to back ISA policies. From 2017, not just a relief, but also a government bonus (Lifetime ISA).

Objective: to encourage individuals to save over time by removing the tax liability for savings income. The Lifetime ISA aims to both encourage savings and support individuals under 40 to buy their first home or save for later life.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	3,500	3,700	3,800	3,700*	4,900*	6,700*
Cost (% GDP)	0.161%	0.165%	0.182%	0.157%*	0.192%*	0.246%*
Number of claimants	20,155,000	27,161,000	22,221,000	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of Individual Savings Accounts (ISAs) has generally increased across time. The ISA subscription limit was increased from £15,240 to £20,000 in 2017 to 2018, resulting in greater subscriptions to ISAs. This helps to explain the increase in costs between 2017 to 2018 and 2018 to 2019.

The increase in the cost of ISAs after this is driven by improved returns to stocks and shares and increased overall accumulated wealth in ISAs. Costs increased in 2020 to 2021 primarily due to increased saving in Stocks and Shares ISAs, combined with the stock market performing well during the COVID-19 pandemic.

It is projected that costs will continue to increase through time as greater wealth is built within ISAs. The number of beneficiaries has been fairly stable over the last few years, indicating that returns to savings and investments already held within ISAs are the primary drivers of the fluctuations in the cost of this relief.

Distributional analysis

HMRC Annual Savings Account (ISA) Statistics reported that in 2019 to 2020 approximately 13 million Adult ISAs were subscribed to £75 billion.

The average subscription was £5,738 in 2019 to 2020. The median ISA holder had an income between £20,000 and £29,999 with average ISA holdings of £21,996. For individuals with an income of £150,000 or more, the average ISA saving was £74,928. Savers in higher income groups generally preferred stocks and shares ISAs over cash ISAs while those in lower income groups strongly preferred Cash ISAs.

The greatest number of savers in 2019 to 2020 were in the 65 and over age group; this group also had the highest average ISA market value of £46,090 compared to £3,910 for under 25s and £6,366 for those aged 25 to 34. Females accounted for 50 per cent of ISA holdings worth £50,000 or more and 52 per cent of holdings worth up to £2,499.

The greatest proportion of adults holding ISAs in England was in the South West at 57 per cent and the lowest was in London at 45 per cent. The total proportion of adults holding ISAs in the United Kingdom was 51 per cent.

Forecast information

The published forecast cost for Individual Savings Accounts from its introduction at Budget 1998 covers the years 1998 to 1999 to 2000 to 2001. This time period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures are not comparable.

5.17 Income Tax and Corporation Tax - capital allowances - annual investment allowance

Description

Annual Investment Allowance provides 100% income tax/corporation tax relief on qualifying capital expenditure up to a limit of £1 million. This limit has been permanently set to £1 million per annum as of Autumn Budget 2022.

Objective: the Annual Investment Allowance (AIA) provides a major simplification benefit by lowering the administrative burden firms, and particularly Small and Medium-sized Enterprises (SMEs), face when calculating their capital allowances entitlement. In offering a 100% tax deduction equivalent to the level of qualifying expenditure in the year it is made, up to an annual limit, the AIA also represents an investment incentive by providing a major cash-flow benefit for businesses investing in qualifying plant and machinery assets.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	3,100	4,200	4,500	3,800	3,000*	5,900*
Cost (% GDP)	0.143%	0.187%	0.216%	0.161%	0.118%*	0.216%*
Number of claimants	1,225,000	1,230,000	1,300,000	1,105,000	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

Between 2017 to 2018 and 2018 to 2019 the cost of Annual Investment Allowance (AIA) was relatively stable, followed by a large increase in 2019 to 2020. In 2021 to 2022 and 2022 to 2023 we project that the costs will fall, as we expect much expenditure that would usually claim the 100% AIA would instead claim the 130% Super-Deduction which was introduced in April 2021. In 2023 to 2024 the cost nearly doubles due to the end of the super-deduction and the increased Corporation Tax main rate from 19% to 25%.

At Autumn Budget 2018 the government announced a temporary increase from £200,000 to the AIA threshold of £1 million from January 2019. This was made permanent at the Autumn Statement 2022. The higher AIA threshold is reflected in the marked increase in 2019 to 2020 and 2020 to 2021.

Distributional analysis

HMRC’s Corporation Tax statistics (table 12b) shows that in 2019 to 2020 the sector which claimed the highest amount of AIA claimed was Manufacturing (£3.7 billion) followed by Wholesale and Retail Trade, Repairs (£3.4 billion). The sector with the lowest amount of AIA claimed was Mining and Quarrying (£115 million).

A TIIN published in 2023 explains the permanent increase of AIA to £1,000,000. The assessment of the impact on small and micro businesses concluded that the temporary increase is expected to benefit the largest small and micro businesses.

Evaluative summary

The Annual Investment Allowance (AIA) provides a major simplification benefit by lowering the administrative burden firms, and particularly Small and Medium-sized Enterprises (SMEs), face when calculating their capital allowances entitlement.

In offering a 100% tax deduction equivalent to the level of qualifying expenditure in the year it is made, up to an annual limit, the AIA also represents an investment incentive by providing a major cash-flow benefit for businesses investing in qualifying plant and machinery assets. The OBR Economic and fiscal outlook (November 2022) discusses the impact of the permanent increase in the AIA threshold on business investment.

Forecast information

The published forecast cost for the Annual Investment Allowance scheme when announced at Budget 2007 covers the years 2007 to 2008 up to 2009 to 2010. This time period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures are not comparable.

5.18 Income Tax and NICs - employer supported childcare including workplace nurseries IT

Description

Relief from income tax for an employee in respect of employer provided care (unlimited), childcare vouchers (currently, up to £55 per week) and directly-contracted childcare (currently, up to £55 per week).

Objective: to support working parents by making childcare more affordable and engaging employers on the issue of childcare.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	940	750	460	360	290	240
Cost (% GDP)	0.043%	0.033%	0.022%	0.015%	0.011%	0.009%
Number of claimants	870,000	700,000	510,000	400,000	320,000	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of the Employer Supported Childcare tax relief saw a significant decrease in 2019 to 2020 and 2020 to 2021 and continues to decrease year on year.

Childcare vouchers closed to new entrants in October 2018. The number of users and the cost of Employer Supported Childcare reduced significantly in 2019 to 2020 and even more so in 2020 to 2021. While the number of users is still in decline, the rate has slowed between 2020 to 2021 and 2021 to 2022. Additionally, a fall in the average individual value of Childcare vouchers cut costs further in 2020 to 2021.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.19 Inheritance Tax - business property relief

Description

Relief from IHT on the transfer of relevant business property.

Objective: to ensure businesses do not have to be sold or broken up following the death of the owner.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	930	685	1,210	1,140*	1,250*	1,300*
Cost (% GDP)	0.043%	0.031%	0.058%	0.048%*	0.049%*	0.048%*
Number of claimants	3,240	2,820	3,380	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

In 2019 to 2020, both the number of estates claiming the relief and the amount of estate value relieved decreased significantly compared to the previous tax year, resulting in a decrease of the cost of the relief. In 2020 to 2021, both the number of estates and the total value of exempted transfers increased. As such, the overall cost of the exemption increased significantly due to an increase of the average qualifying exemption per claimant.

Distributional analysis

HMRC’s Inheritance Tax Liabilities Statistics show that the total amount of estate value relieved in 2020 to 2021 was £3.2 billion, of which £2.55 billion was on unquoted shares (claimed by 2,350 estates) and £0.64 billion (claimed by 1,210 estates) was on other business property. It is important to note here that the values being relieved are not the same as the cost to the Exchequer of the relief. This is because the value of assets qualifying for the relief are not included in the chargeable estate for IHT purposes.

Had the relief not been available, the value of those assets would have been included within the chargeable estate for IHT purposes, and after the application of available tax-free allowances, would face the relevant marginal tax rate. This determines the cost of the relief to the Exchequer.

Evaluative summary

An evaluate summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.18).

Forecast information

The original cost estimates predate HMRC’s official publications of costs of reliefs.

5.20 Inheritance Tax - gifts to charities

Description

Gifts to charities and property held on trust for charitable purposes are exempt from IHT.

Objective: to encourage charitable giving.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	600	615	630	615*	690*	690*
Cost (% GDP)	0.028%	0.027%	0.03%	0.026%*	0.027%*	0.025%*
Number of claimants	10,100	8,190	9,680	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

In 2019 to 2020, both the number of estates and the total value of exempted transfers decreased but the overall cost of the exemption increased due to an increase of the average qualifying exemption per claimant. In 2020 to 2021, both the number of estates using the exemption and the total cost of the exemption increased.

Distributional analysis

HMRC’s Inheritance Tax Liabilities Statistics show that in 2020 to 2021 this exemption was used by 9,680 estates above the Inheritance Tax nil rate band and £1.79 billion of qualifying property was exempted. It is important to note here that the values being relieved are not the same as the cost to the Exchequer of the relief. This is because the value of assets qualifying for the relief are not included in the chargeable estate for IHT purposes.

Had the relief not been available, the value of those assets would have been included within the chargeable estate for IHT purposes, and after the application of available tax-free allowances, would face the relevant marginal tax rate. This determines the cost of the relief to the Exchequer.

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.19).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.21 Inheritance Tax - transfers between spouses and civil partners

Description

Transfer of any asset to a spouse/civil partner is exempt from IHT.

Objective: to recognise the unique legal position of marriage and civil partnership.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	2,940	2,580	3,250	3,380*	4,030*	3,930*
Cost (% GDP)	0.135%	0.115%	0.156%	0.143%*	0.158%*	0.144%*
Number of claimants	22,100	21,500	24,000	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of the exemption of transfers on death to surviving spouses and/or civil partners showed a fall in 2019 to 2020. In 2019 to 2020, the number of estates using the exemption and the total value exempted fell, resulting in a decrease in the cost of the exemption. In 2020 to 2021, the number of estates and the total estate value exempted increased, leading to an increase in the cost of the exemption.

Distributional analysis

HMRC’s Inheritance Tax Statistics for 2020 to 2021 show that this exemption continues to be the largest exemption set against assets. In 2020 to 2021, 24,000 estates made use of this exemption, and £15.7 billion of qualifying property was exempted.

HMRC does not publish separate distributional analysis for estates using the spouse and civil partner exemption, and the exemption is a long-standing feature of the IHT system. However, in general those who benefit from this exemption are likely to be aged 65 and above at the time of their death. Also, the estate that benefits tends to be the estate of someone who is male.

This is because only married or civil partnered individuals are able to benefit from the exemption by definition, and males have shorter life expectancies than females. Given the majority of marriages and civil partnerships are between opposite-sex individuals, females have a higher probability of living longer than their male spouse or civil partner and of receiving the latter’s exempted transferred assets.

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.20).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.22 Inheritance Tax - residence nil rate band

Description

An additional threshold when a residence is being passed on to a direct descendant.

Objective: to make it easier to pass on a family home to direct descendants without a tax charge.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	1,100	1,190	1,650	1,610*	1,910*	1,810*
Cost (% GDP)	0.051%	0.053%	0.079%	0.068%*	0.075%*	0.066%*
Number of claimants	19,100	19,200	25,200	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The residence nil rate band (RNRB) was introduced in the tax year 2017 to 2018. The nominal cost of the RNRB showed consistent growth into the 2019 to 2020 and 2020 to 2021 tax years, in line with the planned increase in the generosity of the threshold.

The number of claimants increased slightly in 2019 to 2020, which only partly explains the increase in the cost of the relief. The remaining difference can be explained by the increase of the nominal value of the RNRB from £125,000 in 2018 to 2019 to £150,000 in 2019 to 2020. In 2020 to 2021, both the nominal cost and the number of claimants increased as the nominal value of the RNRB increased from £150,000 to £175,000 and the number of estates transferring qualifying wealth also rose.

Distributional analysis

The tax year 2020 to 2021 was the fourth year in which the new RNRB tax-free threshold could be used. This threshold provides an additional allowance to qualifying estates so that more property wealth can be transferred to direct descendants before inheritance tax could be due. The threshold was set at £175,000 for the tax year 2020 to 2021, a £25,000 increase on the tax year 2019 to 2020. In the tax year 2020 to 2021, HMRC’s Inheritance Tax Liabilities Statistics show that 25,200 estates used the RNRB, and £6.15 billion of chargeable estate value was sheltered from an inheritance tax charge as a result. This was a rise of £2 billion compared to the tax year 2019 to 2020.

Had the threshold not been available, the value of those assets would have been included within the chargeable estate for IHT purposes, and after the application of available tax-free allowances, would face the relevant marginal tax rate. This determines the cost of the threshold to the Exchequer.

Evaluative summary

An evaluative summary was provided for this relief in the January 2023 Non-structural Tax Reliefs publication (section 7.22).

Forecast information

RNRB is included in the OBR’s inheritance tax receipts forecast in the Economic and Fiscal outlook but the forecast for the cost of the RNRB is not published separately.

The original forecast costs for the RNRB were not separately published when the policy was announced in the 2015 Summer Budget. Instead, the numbers published reflected the freeze of the Nil Rate Band from the 2017 to 2018 to 2020 to 2021 tax years, the introduction of RNRB from the 2017 to 2018 tax year, and the introduction of the RNRB taper.

As a result, comparing RNRB outturn costs to the forecasted impact of the published policy package would be inappropriate.

5.23 NICs - contributions to, and benefits from, registered pension schemes

Description

Payments by way of an employer’s contribution towards a registered pension scheme or by way of any benefit pursuant to a registered pension scheme are disregarded in the calculation of earnings for the purposes of earnings-related contributions.

Objective: to encourage employers to contribute to their workers’ pensions to provide them with an income in retirement.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	17,300	21,400	23,200	23,000*	25,900*	25,300*
Cost (% GDP)	0.796%	0.953%	1.113%	0.974%*	1.015%*	0.928%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

The methodology used to produce these estimates aligns with that used for Table 6 of the Private pensions statistics publication. There is an accompanying quality report for the Private pension statistics publication. The forecasts for 2022 to 2023 and 2023 to 2024 have been updated to include policy changes, including the Lifetime allowance and Annual allowance changes announced at Spring Budget 2023.

Commentary on cost change over time

The cost of National Insurance relief on registered pension schemes has increased from 2017 to 2018 to 2021 to 2022. The relief consists of primary (employee) and secondary (employer) National Insurance Contributions relief, on both employer contributions and salary sacrificed contributions.

The estimated cost of National Insurance relief on registered pension schemes as a proportion of GDP has also increased from 2017 to 2018 to 2021 to 2022. The main drivers of costs during this period could be Automatic Enrolment and wage growth. The minimum contribution rates for Automatic Enrolment increased in April 2019 which would have increased contributions and hence the cost of relief.

The OBR’s labour market forecast shows strong average earnings growth between 2021 and 2024, averaging 4.6% over those 4 years, which could feed into higher pensions contributions and therefore increase the cost of relief.

National Insurance rates changed in 2022 to 2023 which increased the forecasted cost of relief in that year.

The full methodology for Table 6 can be found in section 5.2 of the background and methodology document.

Distributional analysis

ONS workplace pensions statistics show that nearly eight in ten UK employees had a workplace pension in April 2021.

HMRC Private pension statistics (Table 6) estimate that in 2021 to 2022, National Insurance relief on contributions to defined benefit schemes accounted for 58% of National Insurance relief on contributions, the remaining 42% of relief was on contributions to defined contribution schemes.

Evaluative summary

The objective of this relief is to encourage employers to contribute to their workers’ pensions to provide them with an income in retirement.

HM Treasury published a consultation document in 2015 to seek views on whether pension tax relief should be reformed. The responses to this consultation were published in 2016.

HMRC commissioned independent research with individuals and employers on pension tax relief in 2015. The research concluded that only 41% of adults correctly believed that the government tops up people’s pension contributions through tax relief. Many people underestimated the amount of tax relief the government provided on pension contributions. Given their lack of awareness, most people were willing to consider an alternative pension tax system, although this would not necessarily change the amount they saved.

Forecast information

Forecasted relief cost figures for 2021 to 2022 and 2022 to 2023 may be revised in the 2024 private pensions publication as further outturn data becomes available. In particular, 2021 to 2022 is currently based partially on both forecasted data and outturn data; further information can be found in Table 6 of the private pension statistics publication.

5.24 NICs - employment allowance

Description

Allows eligible employers up to £2,000 off employer NICs from April 2014, up to £3,000 off from April 2016, up to £4,000 off from April 2020, and up to £5,000 off from April 2022.

Objective: to support small businesses and charities and reduce the barriers they face by reducing the costs of employment.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	2,200	2,200	2,400	2,600	3,100	3,100*
Cost (% GDP)	0.101%	0.098%	0.115%	0.11%	0.121%	0.114%*
Number of claimants	1,175,000	1,198,000	1,086,000	1,153,000	1,171,000	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of Employment Allowance has steadily increased over time. In April 2020, the allowance increased from £3,000 to £4,000. It was also restricted to businesses who have a NICs liability of under £100,000 in the previous tax year. The former more than offset the latter meaning an overall increase in the cost of the relief in 2020 to 2021.

The large forecasted growth in cost for 2022 to 2023 is partly due to the temporary rise in employer NICs rate, between 6 April 2022 and 5 November 2022, and partly due to the allowance increasing from £4,000 to £5,000.

Distributional analysis

HMRC’s Employment Allowance take-up statistics show that approximately 1,171,000 employers had benefitted from this relief in 2022 to 2023.

The largest three sectors accounted for 42% of claimants, with ‘Wholesale and retail trade: repair of motor vehicles and motorcycles’ being the largest at 17% (198,000). This is followed by ‘Construction’ at 13% (150,000) and ‘Professional, scientific and technical activities’ at 12% (140,000).

This report also shows that the largest three regions accounted for 42% of claimants, with London being the largest at 17% (202,000). This is followed by the South East at 14% (165,000) and the North West at 11% (123,000). Furthermore, 85% of the claimants were ‘Micro’ employers (1 to 9 employees).

Forecast information

See the Comparison of forecast costs to outturn section for this information.

5.25 NICs - relief on employer NICs for employees under 21

Description

A zero rate of Class 1 secondary NICs for employees under 21 up to the upper secondary threshold

Objective: to encourage employers to employ individuals under the age of 21. This also supports youth employment.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	610	630	560	670	850	870*
Cost (% GDP)	0.028%	0.028%	0.027%	0.028%	0.033%	0.032%*
Number of claimants	290,000	295,000	270,000	322,000	328,000	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost has gradually increased up to 2019 to 2020, though the cost as a share of GDP has remained stable. The relief can be claimed across all sectors for all qualifying employees; therefore, trends reflect general employment and wage patterns, rather than linking to any specific sector.

The decrease in 2020 to 2021 was likely due to COVID-19, before returning to trend in 2021 to 2022. The large forecasted growth in cost for 2022 to 2023 is partly due to the temporary rise in employer NICs rate between 6 April 2022 and 5 November 2022.

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.23).

Forecast information

See the Comparison of forecast costs to outturn section for this information.

5.26 Stamp Duty Land Tax - first time buyers’ relief

Description

Relief from SDLT for first time buyers (as defined) of purchases of residential property for £500,000 or less (£625,000 or less from 23 September 2022), provided the purchaser intends to occupy the property as their only or main residence. The relief applies to purchases from 22 November 2017.

Objective: to support home ownership by reducing the upfront cost of buying a home for first time buyers.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	520	540	90	370	710	790*
Cost (% GDP)	0.024%	0.024%	0.004%	0.016%	0.028%	0.029%*
Number of claimants	219,000	222,700	36,900	151,900	203,600	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of First Time Buyers’ Relief was relatively stable from 2018 to 2019 to 2019 to 2020.

COVID-19 and the introduction of the Stamp Duty Land Tax holiday between July 2020 to September 2021 caused the large fall and then partial rebound in the amount of relief claims and the amounts relieved in both 2020 to 2021 and 2021 to 2022.

The revised higher thresholds for this relief (now no tax payable on up to the first £425,000 of the purchase price) that were introduced on 23 September 2022 has had the effect of increasing the value of this relief in 2022 to 2023, however this was partly counteracted by the effect of a higher nil-rate band resulting from changes introduced on the same date.

Distributional analysis

Distributional analysis will be available in HMRC’s Annual Stamp Tax statistics (Table 6d) which will be reported in December 2023.

Evaluative summary

The objective of this relief is to support home ownership by reducing the upfront cost of buying a home for first-time buyers. HMRC published an evaluation of the impact of the relief in May 2023.

A similar, temporary, relief was introduced in March 2010 (covering homes between £125,001 and £250,000), detailed in analysis by HMRC.

Forecast information

See the ‘Comparison of forecast costs to outturn section for this information.

5.27 VAT - construction and sale of new dwellings (includes refunds to DIY builders)

Description

Zero rating of construction and sale of new relevant residential and relevant charitable buildings.

Objective: to incentivise the construction of new homes.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	15,900	16,000	15,000	15,700	17,500*	17,700*
Cost (% GDP)	0.731%	0.713%	0.719%	0.665%	0.686%*	0.649%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of this relief is driven by the number and average value of houses built. According to Office for National Statistics (ONS) data, the average new dwelling price increased by 9% between 2018 to 2019 and 2022 to 2023. However, the number of permanent dwellings completed in England fell by 13% in 2020 to 2021 according to statistics from the Department of Levelling Up, Housing and Communities, activity being adversely affected by COVID-19. There was some recovery in 2021 to 2022, and further recovery in activity is estimated for 2022 to 2023.

As the construction and sale of new dwellings makes up most of the relief, these changes are the main causes of cost changes over time.

Distributional analysis

The ONS House price datasets (Table 11) show that for the year ended March 2023 the average price for newly built dwellings in the United Kingdom was £334,000 compared to £341,000 for other dwellings.

The ONS Construction annual tables (3.3 and 3.6) show that in 2021, the construction industry in Great Britain was made up of around 350,000 firms and employed around 1.4 million workers.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.28 VAT - domestic fuel and power

Description

Reduced rate of VAT on supplies of domestic fuel and power.

Objective: to reduce costs for individuals on their energy bills.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	4,800	4,900	4,800	5,200	8,800	8,100*
Cost (% GDP)	0.221%	0.218%	0.23%	0.22%	0.345%	0.297%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of the reduced rate for domestic fuel and power remained relatively stable up to 2021 to 2022. Variations in individual years were mainly a reflection of fluctuating energy prices charged by suppliers. The increase in 2022 to 2023 reflects the increase in the Ofgem Default Tariff Cap and the government’s Energy Price Guarantee introduced from 1 October 2022, and the forecast for 2023 to 2024 reflects the continued operation of the Guarantee until 30 June 2023 and the Cap thereafter.

Distributional analysis

Distributional analysis was provided for this VAT relief for domestic fuel and power in the December 2021 Non-structural Tax Reliefs publication (section 7.26).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.29 VAT - domestic passenger transport

Description

Zero rating applies to the transport of passengers where the mode of transport takes more than 10 passengers, by Post Bus or on the UK portion of scheduled flights.

Objective: to incentivise passengers to use high-capacity public transport services such as bus, train, ship and aircraft.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	5,300	5,400	2,400	3,700	4,900	5,100*
Cost (% GDP)	0.244%	0.241%	0.115%	0.157%	0.192%	0.187%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of the zero rate for domestic passenger transport rose slightly in 2019 to 2020 reflecting increases in fare prices, and growth in passenger journeys (partly the result of population growth). The estimate for 2020 to 2021 reflects the sharp reduction in use of public transport during COVID-19. There was a partial recovery in 2021-22 and 2022-23, but passenger usage is forecast to remain below pre-pandemic levels in 2023 to 2024.

Distributional analysis

Distributional analysis was provided for this VAT relief for domestic passenger transport in the December 2021 Non-structural Tax Reliefs publication (section 7.27).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.30 VAT - drugs and supplies on prescription

Description

Zero rating applies to drugs dispensed by a pharmacist for personal use.

Objective: to contribute to healthcare costs by ensuring no VAT is charged on the dispensing of medicinal items on prescription by pharmacies to individuals.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	3,100	3,200	3,300	3,300	3,400*	3,600*
Cost (% GDP)	0.143%	0.143%	0.158%	0.14%	0.133%*	0.132%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of drugs and supplies on prescription has gradually increased in nominal terms but has fallen slightly as a proportion of GDP except when this ratio was distorted by the coronavirus (COVID-19) pandemic.

Distributional analysis

Distributional analysis was provided for VAT relief on drugs and supplies on prescription in the December 2021 Non-structural Tax Reliefs publication (section 7.28).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.31 VAT - food

Description

Zero rating of most food (including cold food for takeaway).

Objective: to reduce the cost for most food and drink which is meant for human consumption.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	19,500	20,200	21,000	21,600	23,300	24,200*
Cost (% GDP)	0.897%	0.9%	1.007%	0.915%	0.913%	0.888%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of the relief has risen gradually in nominal terms, including during the COVID-19 period in 2020 to 2021 as consumers maintained expenditure on food purchases, and even increased expenditure during the closure of much of the hospitality sector. As a proportion of GDP, the cost has remained broadly static except during COVID-19 in 2020 to 2021 when expenditure on food did not follow the downturn of the wider economy.

Distributional analysis

Distributional analysis was provided for this VAT relief for food in the December 2021 Non-structural Tax Reliefs publication (section 7.29).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.32 VAT - the VAT zero rate for children’s clothing and protective footwear and helmets

Description

Zero rating of children’s clothing and footwear and protective boots and helmets (including motorcycle and bicycle helmets).

Objective: to support families by reducing the cost of children’s clothing and encourage occupational and road health and safety by reducing the cost of protective equipment.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	1,900	1,900	1,500	1,900	2,100	2,100*
Cost (% GDP)	0.087%	0.085%	0.072%	0.08%	0.082%	0.077%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal annual cost of the relief for children’s clothing was fairly stable with the cost as a share of GDP falling slightly, until the onset of COVID-19. In the pandemic, expenditure on children’s clothing fell in nominal terms, but then recovered in 2021 to 2022. In 2022 to 2023 the nominal cost rose with increased expenditure on clothing due to inflation but was little changed as a proportion of GDP.

Distributional analysis

Distributional analysis was provided for this VAT relief on children’s clothing in the December 2021 Non-structural Tax Reliefs publication (section 7.30).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.33 VAT - VAT registration threshold

Description

Exception from compulsory registration for VAT for traders with taxable supplies below the registration threshold.

Objective: to reduce administrative burdens by keeping businesses operating below the VAT registration threshold, that do not wish to register for VAT, out of the VAT system altogether.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	3,000	3,000	2,500	2,600	3,200*	2,900*
Cost (% GDP)	0.138%	0.134%	0.12%	0.11%	0.125%*	0.106%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

From 2018 to 2019 onwards the VAT registration threshold has been frozen rather than being increased in line with the Retail Prices Index (measures announced at Autumn Budget 2017, Budget 2018, Budget 2021 and Autumn Statement 2022). This has had the effect of drawing more businesses into VAT registration, thereby reducing the cost of the relief. In 2020-21 there was a reduction in the cost of the relief due to a reduction in the number of businesses operating at below the threshold and a reduction in their income, but the cost rises in the following 2 years with estimated recovery following the pandemic. In 2023-24, the downward effect on cost from the threshold freeze is forecast to be more marked than in previous years as rising inflation has increased the impact of the freeze in this year.

Distributional analysis

BEIS statistics state that the number of businesses (whole economy) at the start of 2022 was 5.6 million. HMRC statistics (table 2) show that 2.4 million businesses were registered for VAT at this point.

This indicates that there were around 3.2 million businesses that were not registered for VAT, as a result of this relief. In 2021 to 2022 some 48% (1.2 million) of VAT registered businesses had turnover below the registration threshold. These businesses are not required to register as a result of the relief, but have opted to register voluntarily (see Table 5a in the VAT statistics tables 2021 to 2022).

Evaluative summary

An evaluative summary was provided for this relief in the December 2021 Non-structural Tax Reliefs publication (section 7.31).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.34 VAT - vehicles and other supplies to disabled people [vehicles only]

Description

Zero rating of certain aids and qualifying motor vehicles to the disabled.

Objective: to assist disabled people, with the additional costs associated with purchasing specialist items, or adapting items, to aid them with their disability, a wide range of goods and services are zero rated.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	840	840	850	920	990*	990*
Cost (% GDP)	0.039%	0.037%	0.041%	0.039%	0.039%*	0.036%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of vehicles supplied to disabled people tax relief has risen slightly over time, with the cost as a share of GDP remaining broadly stable.

Distributional analysis

Distributional analysis was provided for this VAT relief on vehicles and other supplies to disabled people in the December 2021 Non-structural Tax Reliefs publication (section 7.32).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.35 VAT - water and sewerage services

Description

Zero rating applies to the supply of sewerage services and water (otherwise than for use in an industrial business activity).

Objective: to contribute to access to clean water through relieving individuals from VAT on the supply of water and sewage services including disposals for all except those involved in an industrial activity.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	2,200	2,300	2,400	2,400	2,600	2,800*
Cost (% GDP)	0.101%	0.102%	0.115%	0.102%	0.102%	0.103%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

During this period the nominal cost of the water and sewerage services tax relief has increased, though the cost as a share of GDP has remained broadly flat (except in 2020-21 when this ratio was distorted by the impact of COVID-19 on GDP). The cost of the relief is driven by (regulated) water prices, and to a lesser extent by population growth.

Distributional analysis

Distributional analysis was provided for this VAT relief on water and sewage services in the December 2021 Non-structural Tax Reliefs publication (section 7.33).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.36 VAT - zero rate for printed matter and e-publications

Description

Zero rating applies to supplies of books, newspapers, magazines etc. in printed form and when supplied electronically.

Objective: to support literacy and reading by reducing the cost of books, newspapers, magazines etc. in printed and electronic form.

Tax year	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Cost (£ million)	1,700	1,700	1,600	1,700	1,700	1,700*
Cost (% GDP)	0.078%	0.076%	0.077%	0.072%	0.067%	0.062%*
Number of claimants	-	-	-	-	-	-

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of this relief has remained broadly static in nominal terms but has been falling as a proportion of GDP. The cost estimates reflect the extension of the relief to e-publications with effect from 1 May 2020, which adds approximately £200 million to the cost in a full year. However, consumption was generally weak in 2020 to 2021 because of COVID-19, offsetting the increase in cost due to the change of policy in that year.

Distributional analysis

Distributional analysis was provided for this VAT relief on printer matter and e-publications in the December 2021 Non-structural Tax Reliefs publication (section 7.34).

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

Question 6

6. Comparison of forecast costs to outturn

Accepted Answer

The following section incorporates comparisons of the outturn costs of tax reliefs against their forecast cost when announced where it is available. We have focused on non-structural tax reliefs which have been announced since the introduction of the OBR in 2010. This analysis is available for the following 9 reliefs:

Table 4: Table of reliefs with forecast vs outturn analysis within this publication

Tax Head	Relief Name
Corporation Tax	Television Tax Relief (Children’s)
Corporation Tax	Orchestra Tax Relief
Corporation Tax	Museums and Galleries exhibition tax relief (MGETR)
Corporation Tax	Theatre tax relief
Income Tax	Social Investment Tax Relief (SITR) - income tax relief
Income Tax	Marriage Allowance
NICs	Relief on employer National Insurance contributions for employees under 21
NICs	Relief on employer National Insurance contributions for apprentices under 25
Stamp Duty Land Tax	First Time Buyers’ Relief

Links to costing notes published at the fiscal events when these reliefs were introduced are provided, which show the original forecast numbers and explain the costing methodology. It is difficult to compare the costs of all tax reliefs with published government forecasts for a number of reasons:

original projections cover a maximum of five years and might not overlap with the period covered in this publication
cost forecasts published at Budget often represent the cost of policy changes to reliefs rather than the whole cost of a relief
wider economic changes and technological developments affect the outturn cost of the relief and are unforeseeable when they are announced

6.1 Television tax relief (children’s)

Description

Television production companies can claim additional corporation tax relief on producing children’s programmes in the UK. Companies not making a profit may be able to surrender the loss and receive a tax credit.

Metric	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Forecast cost (£ million)	5	5	-	-	-	-
Cost Estimate (£ million)	25	20	-	-	-	-
Difference (£ million)	20	15	-	-	-	-
Percentage difference	400%	300%	-	-	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), to be more comparable to the forecast cost. The outturn cost has been consistently above forecast since 2017 to 2018. Take-up of the relief has been higher than originally anticipated.

See the policy costing for more information.

6.2 Orchestra tax relief

Description

Orchestra companies can claim additional corporation tax relief for UK or EEA expenditure incurred on producing orchestral concerts. Companies not making a profit may be able to surrender the loss and receive a tax credit.

Metric	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Forecast cost (£ million)	10	10	-	-	-	-
Cost Estimate (£ million)	15	15	-	-	-	-
Difference (£ million)	5	5	-	-	-	-
Percentage difference	50%	50%	-	-	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), to be more comparable to the forecast cost. The outturn cost was above forecast in 2018 to 2019 and 2019 to 2020. Take-up of the relief has been slightly higher than originally anticipated in these years.

See the policy costing for more information.

6.3 Museums and galleries exhibition tax relief (MGETR)

Description

Charitable museum companies can claim additional corporation tax relief for UK or European Economic Area (EEA) expenditure incurred on producing exhibitions. Companies not making a profit may be able to surrender the loss and receive a payable tax credit.

Metric	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Forecast cost (£ million)	30	30	30	30	-	-
Cost Estimate (£ million)	15	10	10	10	-	-
Difference (£ million)	-15	-20	-20	-20	-	-
Percentage difference	-50%	-67%	-67%	-67%	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), to be more comparable to the forecast cost. Outturn cost is consistently below forecast. Take-up of the relief has grown more slowly than originally anticipated.

See the policy costing for more information.

6.4 Theatre tax relief

Description

Theatre companies can claim additional corporation tax relief for UK or EEA expenditure incurred on producing theatrical productions. Companies not making a profit may be able to surrender the loss and receive a tax credit.

Metric	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Forecast cost (£ million)	20	-	-	-	-	-
Cost Estimate (£ million)	75	-	-	-	-	-
Difference (£ million)	55	-	-	-	-	-
Percentage difference	275%	-	-	-	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), to be more comparable to the forecast cost. The outturn cost is much higher than originally forecast. Take-up of the relief has been significantly higher than originally anticipated reflecting the relatively low value of the British pound encouraging inward investment, with theatre productions transferring from overseas.

See the policy costing for more information.

Description

Tax relief against the income tax liability for individuals of 30% of the amounts invested in newly issued holdings in qualifying social enterprises. The maximum amount invested in social enterprises on which relief can be claimed is £1 million.

Metric	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Forecast cost (£ million)	35	45	-	-	-	-
Cost Estimate (£ million)	Negligible	Negligible	-	-	-	-
Difference (£ million)	30	40	-	-	-	-
Percentage difference	86%	89%	-	-	-	-

Commentary on differences between outturn cost and original forecast

“The cost estimates are very low. Estimates which round to £3 million or less are classed as ‘negligible’, so here the difference and percentage difference have been calculated assuming the cost estimate were £3 million to provide indicative differences. The income tax cost of the Social Investment Tax Relief (SITR) scheme has been consistently lower than originally forecast, reflecting much lower take up of the scheme than originally assumed.

6.6 Marriage allowance

Description

Gives a tax reduction to a person whose spouse or civil partner has elected for a reduced Personal Allowance.

Metric	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Forecast cost (£ million)	775	-	-	-	-	-
Cost Estimate (£ million)	190	-	-	-	-	-
Difference (£ million)	-585	-	-	-	-	-
Percentage difference	-75%	-	-	-	-	-

Commentary on differences between outturn cost and original forecast

Outturn costs have been consistently lower than originally forecast. The main driver of the differences is a lower than forecast take up of the allowance when introduced in 2015 to 2016. Though the number of claimants has since increased over time, the number of claimants is still below that originally forecast.

The Budget 2014 announcement to align the Marriage Allowance to 10% of the Personal Allowance also affects the comparability of the forecast to the outturn costs. The baseline tax system forecast from the original policy will also be different due to changes in economic determinants, indexation of the tax system and policy changes to the Personal Allowance.

See the policy costing note for more information.

6.7 Relief on employer NICs for employees under 21

Description

A zero rate of Class 1 secondary NICs for employees under 21 up to the upper secondary threshold

Metric	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Forecast cost (£ million)	530	-	-	-	-	-
Cost Estimate (£ million)	610	-	-	-	-	-
Difference (£ million)	80	-	-	-	-	-
Percentage difference	15%	-	-	-	-	-

Commentary on differences between outturn cost and original forecast

The outturn cost is higher than the forecast. The original forecast was based on a 1% sample of taxpayers’ P14 data from the Survey of Personal Incomes for 2010 to 2011. Outturn is estimated using a near-complete view of employees and their monthly wages from HMRC’s Real Time Information (RTI). The SPI is on an individual basis and the RTI is on an employment basis and individuals can have multiple employments. There is a higher number of employments being claimed for than the original estimates.

Since 2013 there have been changes in OBR determinants (economic projections) which would affect the costs, including the number of relevant employments and wages (see March 2023 Economic and fiscal outlook – supplementary economy tables).

See the policy costing for more information.

6.8 Relief on employer NICs for apprentices under 25

Description

A zero rate of Class 1 secondary NICs for employees under 25 up to the upper secondary threshold

Metric	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Forecast cost (£ million)	120	125	-	-	-	-
Cost Estimate (£ million)	160	190	-	-	-	-
Difference (£ million)	40	65	-	-	-	-
Percentage difference	33%	52%	-	-	-	-

Commentary on differences between outturn cost and original forecast

The outturn cost is consistently higher than the forecast. The original forecast was based on a 1% sample of employee jobs from the Annual Survey of Hours and Earnings for 2013 and BIS apprenticeship data. The outturn is estimated using a near-complete view of employees and their monthly wages from HMRC’s Real Time Information. There is a higher number of apprenticeships being claimed for than the original number of individuals that were expected to be affected.

Since 2013 there have been changes in Office for Budget Responsibility (OBR) determinants (economic projections) which would affect costs, including the number of relevant employments and wages (see March 2023 Economic and fiscal outlook – supplementary economy tables).

See the policy costing for more information.

6.9 First time buyers’ relief

Description

Relief from SDLT for first time buyers (as defined) of purchases of residential property for £500,000 or less (£625,000 or less from 23 September 2022), provided the purchaser intends to occupy the property as their only or main residence. The relief applies to purchases from 22 November 2017.

Metric	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
Forecast cost (£ million)	560	585	610	640	670	-
Cost Estimate (£ million)	520	540	90	370	710	-
Difference (£ million)	-40	-45	-520	-270	40	-
Percentage difference	-7%	-8%	-85%	-42%	6%	-

Commentary on differences between outturn cost and original forecast

The outturn is relatively close to the forecast for 2018 to 2019 and 2019 to 2020. In 2020 to 2021 the SDLT holiday was introduced which meant that there was no tax payable on purchases below £500,000 and First Time Buyers’ relief did not apply between 8th July 2020 and 30th June 2021. From 1st July 2021 up to 30th September 2021 and from 23rd September 2022 onwards, there was no tax payable on the first £250,000 of the purchase price so relief claims would have been limited during these periods. The cost of the relief in 2020 to 2021 and 2021 to 2022 is therefore much lower than originally forecast.

The revised higher thresholds for this relief (now no tax payable on up to the first £425,000 of the purchase price) that were introduced on 23 September 2022 has had the effect of increasing the value of this relief in 2022 to 2023. However, this is counteracted by the effect of a higher nil-rate band resulting from changes introduced on the same date and resulted in a 2022-23 projection below forecast. See the policy costing for more information.

Question 7

7. Annex - Revisions since January 2023 publication

Accepted Answer

Each year the estimates are updated for a number of reasons including:

new outturn data received into the department from tax returns (for some taxes there can be a substantial delay in taxation, e.g., inheritance tax)
return data (or other data sources) being received due to the nature of that particular regime
improvements to methodology behind collecting information or forecasting the estimates
including the latest OBR economic forecasts in HMRC forecast models where possible

The revisions table below shows the reasons for changes in estimates of non-structural tax reliefs, which is largely due to incorporation of the latest available data. The following table includes commentary on any large changes in the figures since the previous publication. For our purposes large changes are defined as those greater than £500 million or 25 per cent.

Table 5: Summary of revisions to non-structural tax relief cost estimates since January 2023

Name	Code	Tax type	Reason for change
Construction and sale of new dwellings (includes refunds to DIY builders)	VAT - NS3	VAT	Updated for latest data.
Domestic passenger transport	VAT - NS5	VAT	Updated for latest data.
Food	VAT - NS7	VAT	Updated for latest data.
The Reduced rate of VAT for Children’s car seats.	VAT - NS9	VAT	Updated for latest data.
Reduced rate for contraceptive products	VAT - NS10	VAT	Updated for latest data.
Reduced rate of VAT on energy saving materials	VAT - NS11	VAT	Updated for latest data.
Zero rate for women’s sanitary products from 01/01/2021.	VAT - NS13	VAT	Updated methodology. The estimates are now based on a wider range of data sources, resulting in upward revisions of the estimated costs in all years.
Transfers to charities	SDLT - NS2	Stamp Duty Land Tax	Updated methodology. HMRC has made improvements to the methodology for estimating Stamp Duty Land Tax reliefs, effective from 2021 to 2022 onwards. These have resulted in uplifts to the relief estimate and the relief count. 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. This has increased the relief estimates by an average of £140m per year.
Certain acquisitions by registered social landlords	SDLT - NS3	Stamp Duty Land Tax	Updated methodology. HMRC has made improvements to the methodology for estimating Stamp Duty Land Tax reliefs, effective from 2021 to 2022 onwards. These have resulted in uplifts to the relief estimate and the relief count. 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. This has increased the relief estimates by an average of £170m per year.
Exclusion from CPS rates for supplies to good quality CHP stations	CPF - NS1	Carbon Price Floor	Updated for latest data.
Exemption of energy used in some forms of transport	CCL - NS3	Climate Change Levy	Updated for latest data.
Exemption for the first £30,000 of a termination award that would otherwise be chargeable as specific employment income	IT - NS9	Income Tax	Updated for latest data. Previously these estimates underestimated the population and average payment. Updated with current FRS and Labour Force Survey (LFS) data.
Personal Savings Allowance (PSA)	IT - NS18	Income Tax	Revisions to OBR determinants used in costing.
War disablement benefits	IT - NS29, NSU - IT_CT26	Income Tax	Updated for latest data. Updated with two years of outturn data - 2020 to 2021 and 2021 to 2022. A five-year average is used for 2022 to 2023 given large recent fluctuations.
War Widows Pension	IT - NS30	Income Tax	Updated methodology.
Children’s TV Tax Relief	CT - NS2	Corporation Tax	Updated for latest data.
Theatre tax relief	CT - NS9	Corporation Tax	Updated for latest data.
Museums and Galleries exhibition tax relief (MGETR)	CT - NS12	Corporation Tax	Updated for latest data.
Orchestra tax relief	CT - NS13	Corporation Tax	Updated for latest data.
Enterprise Investment Scheme (EIS) - disposal relief	CGT - NS3	Capital Gains Tax	Updated methodology.
Venture Capital Trusts (VCTs) - Income Tax Relief	IT - NS28	Income Tax	Updated for latest data.
Enterprise Investment Scheme (EIS) - Income Tax Relief	IT - NS7	Income Tax	Updated for latest data.
Patent box	CT - NS6	Corporation Tax	Updated methodology. The forecast cost of the relief increases in 2023-24 due to the increase in the headline rate of Corporation Tax, which results in a more generous relief for Patent Box users.
Capital allowances - annual investment allowance	IT_CT - NS1	Income Tax and Corporation Tax	Updated for latest data. Updated for latest data.
Business property relief	IHT - NS2	Inheritance Tax	Updated for latest data.
Conditional exemption	IHT - NS3	Inheritance Tax	Updated for latest data.
Quick succession relief	IHT - NS8	Inheritance Tax	Updated for latest data.
Taper Relief	IHT - NS9	Inheritance Tax	Updated for latest data.
Private residence relief	CGT - NS1	Capital Gains Tax	Changes in OBR forecast for property prices and transactions contribute to the larger change in the profile for 2022/23. A negative forecast for property prices and transactions contributes to the fall in cost in 2023/24 but is offset to a degree by the reduction of the CGT Annual Exempt Amount to £6,000 in the same year.
Capital allowances: ring-fence oil business trades, first-year capital allowances for plant or machinery	IT_CT - NS3	Corporation Tax	Updated for latest data.
Individual Savings Accounts	IT - NS12	Income Tax and Capital Gains Tax	Updated methodology. The estimate for the tax year 2023 to 2024 is higher as a result of higher interest rates, and policy decisions to decrease the dividend allowance from £2,000 to £1,000 and capital gains tax-free allowance from £12,300 to £6,000. Previous years have also been revised as a result of methodology improvements to estimate average tax rates.
Registered pension schemes	IT - NS21	Income Tax	Updated for latest data. The estimates have been partially updated using the latest outturn data, while previously they were fully forecasted. The newer relief estimates for 2021-22 and 2022-23 are lower than last year’s release. This is because the new outturn data revealed that deficit reduction contributions, which receive Income Tax relief, were lower than previously estimated. Also, charges on pensions in payment, Annual allowance and Lifetime allowance, which are subtracted from gross relief to give net Income Tax relief, were higher than previously estimated.
Contributions to, and benefits from, registered pension schemes	NIC - NS4	NICs	Updated for latest data. The estimates have been partially updated using the latest outturn data, while previously they were fully forecasted. The newer NICs relief estimates for 2021-22 and 2022-23 are lower than last year’s release. This is because the new outturn data revealed that deficit reduction contributions (DRCs) were lower than previously estimated.

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1. Summary

2. About this publication

2.1 Progress against external recommendations

Table 1: Progress on costing previously uncosted reliefs since 2020

2.2 What’s new?

Table 2: New costings for previously uncosted non-structural tax reliefs

2.3 Developing and expanding commentary on the cost and impact of reliefs

3. Headline statistics

3.1 Largest non-structural reliefs

Figure 1: the largest value tax reliefs within each tax head in 2022 to 2023

Figure 2: the aggregate cost (£ billion) and number of non-structural reliefs with estimates available in the tax year 2022 to 2023 by tax head

Figure 3: the total value of tax receipts (£ billion) in tax year 2022 to 2023 and number of non-structural tax reliefs by tax head

3.2 Change in the cost of non-structural reliefs over time

Figure 4: changes in the outturn estimates for non-structural reliefs as a proportion of GDP from tax year 2018 to 2019 to tax year 2022 to 2023

Figure 5: largest percentage changes in the cost of large reliefs in the period 2018 to 2019 to 2022 to 2023

3.3 Single-year cost estimates

Figure 6: number of reliefs estimates with a single-year costing by uncertainty rating

4. Methodology and quality assurance

5. Detailed analysis for the most significant non-structural tax reliefs

Table 3: Large reliefs with detailed analysis within this publication

5.1 Capital Gains Tax - business asset disposal relief

Description

Figure 7: nominal annual cost (£ million) and cost as a share of GDP (%)

Commentary on cost change over time

Distributional analysis

Evaluative summary

Forecast information

5.2 Capital Gains Tax - private residence relief

Description

Figure 8: nominal annual cost (£ million) and cost as a share of GDP (%)

Commentary on cost change over time

Distributional analysis

Evaluative summary

Forecast information

5.3 Corporation Tax - capital allowances: ring-fence oil business trades, first-year capital allowances for plant or machinery

Description

Figure 9: nominal annual cost (£ million) and cost as a share of GDP (%)

Commentary on cost change over time

Evaluative summary

External data sources

Forecast information

5.4 Corporation Tax - film tax relief

Description

Figure 10: nominal annual cost (£ million) and cost as a share of GDP (%)

Commentary on cost change over time

Distributional analysis

Evaluative summary

Forecast information

5.5 Corporation Tax - high-end TV tax relief

Description

Figure 11: nominal annual cost (£ million) and cost as a share of GDP (%)

Commentary on cost change over time

Distributional analysis

Evaluative summary

Forecast information

5.6 Corporation Tax - patent box

Description

Figure 12: nominal annual cost (£ million) and cost as a share of GDP (%)

Commentary on cost change over time

Distributional analysis

Evaluative summary

Forecast information

5.7 Corporation Tax - research and development tax relief: R&D expenditure credit

Description

Figure 13: nominal annual cost (£ million) and cost as a share of GDP (%)

Commentary on cost change over time

Distributional analysis

Evaluative summary

External data sources

Forecast information

5.8 Corporation Tax - research and development tax relief: small and medium companies scheme

Description

Figure 14: nominal annual cost (£ million) and cost as a share of GDP (%)

Commentary on cost change over time

Distributional analysis

Evaluative summary

External data sources

Forecast information

5.9 Hydrocarbon Oil Duties - duty rate for marked gas oil and kerosene used as fuel in an engine, other than in a road vehicle or for heating