Official Statistics

4. Tax gaps: Income Tax, National Insurance contributions and Capital Gains Tax

Updated 19 June 2025

Summary

The Income Tax, National Insurance contributions (NICs) and Capital Gains Tax gap is estimated using a combination of established and illustrative methodologies. It is made up of 4 main components:

• the Self Assessment tax gap is estimated using random enquiry programme (REP) data, and is formed from 3 components: the business Self Assessment tax gap, the non-business Self Assessment tax gap and the large partnerships Self Assessment tax gap
• the PAYE tax gap is estimated using REP data, statistical and illustrative methodologies, and is formed from 3 components: small, mid-sized and large businesses

• the hidden economy tax gap is estimated using a combination of established bottom-up methodologies, including management information and survey data, and is formed of two components: moonlighters (individuals who are employees in their legitimate occupation but do not declare earnings from other sources of income) and ghosts (individuals who do not declare any of their income to HMRC, be it earned or unearned)

• the avoidance tax gap relates to marketed avoidance schemes sold primarily to individuals and estimated using an established bottom-up method

To evaluate the uncertainty of the Income Tax, NICs and Capital Gains Tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’.

• the Self Assessment tax gap: the business and non-business tax gaps estimates have ‘medium’ uncertainty, and the large partnerships tax gap has ‘very high’ uncertainty
• the PAYE tax gap: the small businesses and mid-sized businesses PAYE tax gaps have ‘medium’ uncertainty, and the large businesses PAYE tax gap has ‘very high’ uncertainty
• the hidden economy tax gap: the moonlighters estimate has ‘high’ uncertainty, and the ghosts estimate has ‘very high’ uncertainty
• the avoidance tax gap has ‘high’ uncertainty

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

Main findings

Figure 4.1 shows the Income Tax, NICs and Capital Gains Tax gap time-series in absolute terms and as a percentage of theoretical Income Tax, NICs and Capital Gains Tax liability.

The tax gap for Income Tax, NICs and Capital Gains Tax is 3.0% of the theoretical Income Tax, NICs and Capital Gains Tax liability, or £14.4 billion in absolute terms, in the 2023 to 2024 tax year.

There has been a long-term reduction in the Income Tax, NICs and Capital Gains Tax gap from 4.5% in 2005 to 2006 to 3.0% in 2023 to 2024. It peaked at 5.3% in 2013 to 2014 but fell to 3.3% in 2017 to 2018. Since 2017 to 2018, the Income Tax, NICs and Capital Gains Tax gap has been more stable between 3.0% and 3.5%.

Components of the Income Tax, NICs and Capital Gains Tax gap are projected in line with liabilities from earlier years where sufficient actual data is not yet available. Projections are based on the 2021 to 2022 estimate.

Figure 4.1: Income Tax, NICs and Capital Gains Tax gap by value and as a percentage of theoretical tax liabilities, 2005 to 2006 up to 2023 to 2024

Notes for Figure 4.1:

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

Figure 4.2 shows the overall, PAYE and Self Assessment Income Tax, NICs and Capital Gains Tax gaps as a percentage of theoretical tax liability. The hidden economy and avoidance tax gaps are not shown because a percentage tax gap is not calculated for these estimates. The Self Assessment tax gap as a percentage of theoretical tax liability has consistently been higher than the PAYE tax gap across the time-series.

Figure 4.2: Income Tax, NICs and Capital Gains Tax gap as a percentage of total theoretical tax liabilities

Notes for Figure 4.2:

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

2. IT, NICs and CGT stands for ‘Income Tax, NICs and Capital Gains Tax’.

3. All IT, NICs and CGT includes Self Assessment, PAYE, hidden economy and avoidance.

Figure 4.3 shows the proportion of the Income Tax, NICs and Capital Gains Tax gap which come from the Self Assessment, PAYE, hidden economy and avoidance tax gaps since 2019 to 2020. Self Assessment is the largest component in each year with a 60.8% share in 2023 to 2024, followed by PAYE with a 27.3% share, hidden economy with a 10.7% share and then avoidance with a 1.2% share.

Figure 4.3: Shares of Income Tax, NICs and Capital Gains Tax gap by component

Year	Self Assessment	PAYE	Hidden economy	Avoidance
2019-20	59.0%	27.0%	11.1%	2.8%
2020-21	61.6%	25.1%	11.0%	2.4%
2021-22	64.1%	25.2%	9.5%	1.3%
2022-23	61.3%	26.5%	10.8%	1.4%
2023-24	60.8%	27.3%	10.7%	1.2%

Notes for Figure 4.3:

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

2. Figures are rounded to the nearest 0.1%.

3. Figures may not sum due to rounding.

Self Assessment (Income Tax, NICs and Capital Gains Tax)

Summary

The Self Assessment tax gap is estimated using 3 components:

• the business (self-employed taxpayers and partnerships with up to 4 partners) Self Assessment tax gap, estimated using an established approach based on a combination of REP and operational enquiry data
• the non-business (individuals without business income and trusts) Self Assessment tax gap, estimated using an established approach based on a combination of REP and operational enquiry data
• the large partnerships (partnerships with 5 or more partners) Self Assessment tax gap, illustratively estimated by assuming the tax at risk will be a similar proportion of liabilities to all other Self Assessment taxpayers

In the tax years impacted by COVID-19 (2020 to 2021 and 2021 to 2022), adjustments have been made to maintain the validity of certain assumptions and consistency in the time-series.

To evaluate the uncertainty of our Self Assessment tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’

• the business and non-business Self Assessment tax gaps are both rated medium uncertainty
• the large partnerships tax gap is rated very high uncertainty

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

Figure 4.4 shows the Self Assessment tax gap time-series in absolute terms and as a percentage of theoretical Self Assessment tax liability.

The tax gap for Self Assessment is 12.5% of the theoretical Self Assessment tax liability, or £8.7 billion in absolute terms, in the 2023 to 2024 tax year.

There has been a long-term reduction in the Self Assessment tax gap, from 15.1% in 2005 to 2006 to 12.5% in 2023 to 2024. Between 2005 to 2006 and 2012 to 2013 the estimate increased from 15.1% to 21.7% and then fell to 11.8% in 2017 to 2018. The Self Assessment tax gap has been more stable in recent years, varying between 12.4% and 13.2%.

The Self Assessment gap estimates for both the business and non-business components are projected from 2022 to 2023 onwards, in line with Self Assessment tax liability.

Figure 4.4: Self Assessment tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2023 to 2024

Notes for Figure 4.4:

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

Figure 4.5 shows the overall Self Assessment tax gaps as a proportion of theoretical tax liability, broken down into overall, business (self-employed and small partnerships), non-business and large partnerships (partnerships with 5 or more partners). The business component has the highest percentage gap, more than double the size of the gaps for non-business and large partnerships.

Figure 4.5 Self Assessment tax gap as a percentage of theoretical tax liability, and its components

Notes for Figure 4.5:

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

Main findings

Figure 4.6 shows the Self Assessment tax gap, the Self Assessment tax liability and the Self Assessment total theoretical tax liability, which is the sum of the tax gap and tax liability, since 2019 to 2020.

Over the last 5 years, the Self Assessment tax liability has increased from £46.9 billion to £61.2 billion. The Self Assessment tax liability grew fastest between 2020 to 2021 and 2021 to 2022, when it peaked at £62.7 billion, before declining to £61.2 billion in 2023 to 2024.

The Self Assessment net tax gap has increased from £7.1 billion to £8.7 billion over the same period. The Self Assessment net tax gap increased between 2020 to 2021 and 2021 to 2022, where it peaked at £9.2 billion before falling to £8.7 billion in 2023 to 2024. The estimate for 2022 to 2023 and 2023 to 2024 are projected in line with the Self Assessment tax liabilities.

Figure 4.6: Self Assessment tax gap, tax liability and theoretical tax liability, since 2019 to 2020 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2019-20	7.1	46.9	54.0
2020-21	7.4	52.2	59.6
2021-22	9.2	62.7	2.0
2022-23	8.2	58.0	66.3
2023-24	8.7	61.2	70.0

Notes for Figure 4.6:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

4. Liability refers to the actual amount HMRC expects to receive, based on taxpayer declarations and compliance activity.

Figure 4.7 shows the Self Assessment tax gap, and its components: gross tax gap, compliance yield, and non-payment, since 2019 to 2020. The Self Assessment tax gap is calculated as the gross tax gap plus non-payment, minus compliance yield.

The non-payment figure remains largely stable at between £0.5 billion and £0.6 billion. Compliance yield has increased from £1.6 billion in 2019 to 2020 to £1.7 billion in 2023 to 2024, peaking at £1.9 billion in 2021 to 2022.

Both the Self Assessment gross tax gap and net tax gap follow the same trend, generally increasing in absolute terms across the 5 year period. The Self Assessment gross tax gap increased from £8.2 billion in 2019 to 2020 to £9.8 billion in 2023 to 2024, peaking at £10.5 billion in 2021 to 2022. The Self Assessment net tax gap increased from £7.1 billion to £8.7 billion over the same period.

Figure 4.7: Components of the Self Assessment tax gap, since 2019 to 2020 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2019-20	8.2	1.6	0.6	7.1
2020-21	8.6	1.8	0.5	7.4
2021-22	10.5	1.9	0.6	9.2
2022-23	9.1	1.5	0.6	8.2
2023-24	9.8	1.7	0.6	8.7

Notes for Figure 4.7:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

Proportion of Self Assessment returns with under-declared Self Assessment tax liability

The proportion of Self Assessment returns with under-declared tax liability can be estimated from REP data.

Figure 4.8 shows the estimated proportion of incorrect Self Assessment returns where the Self Assessment tax liability has been under-declared for business and non-business taxpayers. The proportion of incorrect Self Assessment returns was broadly stable around 23% between 2017 to 2018 and 2019 to 2020, but increased to 30% in 2020 to 2021 and 33% in 2021 to 2022. The proportion of returns with an under-declaration below £500 increased from 9% of returns in 2019 to 2020 to 14% in 2020 to 2021.

Figure 4.8: Proportion of Self Assessment returns with under-declared Self Assessment tax liability

Notes for Figure 4.8:

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

2. Figures are rounded to the nearest 1%.

3. Figures may not sum due to rounding.

Additional findings

Self Assessment business tax gap

Figure 4.9 shows the Self Assessment business (self-employed taxpayers and partnerships with up to 4 partners) tax gap time-series in absolute terms and as a percentage of theoretical Self Assessment business tax liability.

The tax gap for Self Assessment business is 22.7% of the theoretical Self Assessment business tax liability, or £5.8 billion in absolute terms, in the 2023 to 2024 tax year.

The Self Assessment business percentage tax gap has slightly increased from 20.7% in 2005 to 2006 to 22.7% in 2023 to 2024. The Self Assessment business tax gap peaked at 31.3% in 2013 to 2014 and then fell to 18.8% in 2017 to 2018. Since 2017 to 2018, the tax gap increased to 25.0% in 2018 to 2019 and has remained broadly stable in recent years.

The Self Assessment business tax gap estimate is projected in line with Self Assessment business tax liability from 2022 to 2023.

Figure 4.9: Self Assessment business tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2023 to 2024

Notes for Figure 4.9:

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

Figure 4.10 shows the Self Assessment business tax gap, the Self Assessment business tax liability, and the theoretical Self Assessment business tax liability, which is the sum of the tax gap and tax liability, since 2019 to 2020.

The Self Assessment business tax liability has increased from £15.5 billion to £19.6 billion over the 5 years, with substantial growth between 2020 to 2021 and 2021 to 2022 when the tax liability peaked at £22.0 billion. The Self Assessment business net tax gap has increased from £4.5 billion to £5.8 billion over the 5 years, peaking at £6.1 billion in 2021 to 2022.

Figure 4.10: Self Assessment business tax gap, tax liability and theoretical tax liability, since 2019 to 2020 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2019-20	4.5	15.5	20.1
2020-21	5.2	16.8	22.0
2021-22	6.1	22.0	28.0
2022-23	5.2	17.6	22.7
2023-24	5.8	19.6	25.4

Notes for Figure 4.10:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

4. Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.

Figure 4.11 shows the Self Assessment business tax gap, and its components: gross tax gap, compliance yield and non-payment, since 2019 to 2020. The Self Assessment business tax gap is calculated as the gross tax gap plus non-payment, minus compliance yield.

Non-payment was stable at £0.2 billion in each of these years. Compliance yield fell from £0.5 billion in 2019 to 2020 to £0.1 billion in 2023 to 2024. The gross tax gap increased from £4.8 billion in 2019 to 2020 to £5.7 billion in 2023 to 2024.

Figure 4.11: Components of the Self Assessment business tax gap, since 2019 to 2020 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2019-20	4.8	0.5	0.2	4.5
2020-21	5.5	0.5	0.2	5.2
2021-22	6.4	0.6	0.2	6.1
2022-23	5.1	0.2	0.2	5.2
2023-24	5.7	0.1	0.2	5.8

Notes for Figure 4.11:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

Figure 4.12 shows the estimated proportion of incorrect Self Assessment returns where the Self Assessment tax liability has been under-declared for business taxpayers only. The proportion of incorrect Self Assessment returns from business taxpayers has increased from 23% in 2017 to 2018 to 43% in 2021 to 2022.

Figure 4.12: For business taxpayers, proportion of Self Assessment returns with under-declared Self Assessment tax liability

Notes for Figure 4.12:

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

2. Figures are rounded to the nearest 1%.

3. Figures may not sum due to rounding.

Self Assessment non-business tax gap

Figure 4.13 shows the Self Assessment non-business (individuals without business income and trusts) tax gap time-series in absolute terms and as a percentage of theoretical Self Assessment non-business tax liability.

The tax gap for Self Assessment non-business is 5.6% of the theoretical Self Assessment non-business tax liability, or £1.6 billion in absolute terms, in the 2023 to 2024 tax year.

There has been a long-term reduction in the Self Assessment non-business tax gap, from 6.9% in 2005 to 2006 to 5.6% in 2023 to 2024. There have been some fluctuations over the time-series, and the Self Assessment non-business tax gap reached a peak of 15.2% in 2012 to 2013. Since 2013 to 2014 there has been a long-term downward trend.

The Self Assessment non-business tax gap estimate is projected in line with Self Assessment non-business tax liability from 2022 to 2023.

Figure 4.13: Self Assessment non-business tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2023 to 2024

Notes for Figure 4.13:

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

Figure 4.14 shows the Self Assessment non-business tax gap, the Self Assessment non-business tax liability, and the Self Assessment non-business theoretical tax liability, which is the sum of the tax gap and tax liability, since 2019 to 2020.

Self Assessment non-business tax liability has increased from £19.6 billion to £25.9 billion over the 5 years, with the largest growth between 2020 to 2021 and 2021 to 2022. The net tax gap varies between £1.0 billion and £1.8 billion.

Figure 4.14: Self Assessment non-business tax gap, tax liability and theoretical tax liability, since 2019 to 2020 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2019-20	1.3	19.6	20.9
2020-21	1.0	21.5	22.5
2021-22	1.8	25.1	26.8
2022-23	1.6	24.8	26.5
2023-24	1.6	25.9	27.5

Notes for Figure 4.14:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

4. Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.

Figure 4.15 shows the Self Assessment non-business tax gap, and its components: gross tax gap, compliance yield and non-payment, since 2019 to 2020. The Self Assessment non-business tax gap is calculated as the gross tax gap plus non-payment, minus compliance yield.

Non-payment increased from £0.2 billion to £0.3 billion over the 5 years. Compliance yield increased from £0.8 billion to £1.1 billion. The gross tax gap increased from £1.9 billion to £2.4 billion over the 5 years.

Figure 4.15: Components of the Self Assessment non-business tax gap, since 2019 to 2020 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2019-20	1.9	0.8	0.2	1.3
2020-21	1.6	0.8	0.2	1.0
2021-22	2.4	0.8	0.2	1.8
2022-23	2.3	0.9	0.3	1.6
2023-24	2.4	1.1	0.3	1.6

Notes for Figure 4.15:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

Figure 4.16 shows the estimated proportion of incorrect Self Assessment returns, where the Self Assessment tax liability has been under-declared, for non-business taxpayers only.

The proportion of incorrect Self Assessment returns from non-business taxpayers decreased from 22% in 2017 to 2018 to 19% in 2019 to 2020 and then increased to 25% in 2021 to 2022. The proportion of incorrect returns with under-declaration below £500 increased from 10% in 2017 to 2018 to 13% in 2021 to 2022.

Between 2017 to 2018 and 2021 to 2022, the proportion of taxpayers with incorrect returns was lower for non-business taxpayers than for business taxpayers (shown in Figure 4.12).

Figure 4.16: For non-business taxpayers, proportion of Self Assessment returns with under-declared Self Assessment tax liability

Notes for Figure 4.16:

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

2. Figures are rounded to the nearest 1%.

3. Figures may not sum due to rounding.

Self Assessment large partnerships

Figure 4.17 shows the Self Assessment large partnerships (partnerships with 5 or more partners) tax gap time-series in absolute terms and as a percentage of Self Assessment large partnerships theoretical tax liability. The Self Assessment large partnerships tax gap is illustratively estimated and is not covered by the Self Assessment REP.

The tax gap for Self Assessment large partnerships is 8.3% of the theoretical Self Assessment large partnerships tax liability, or £1.4 billion in absolute terms, in the 2023 to 2024 tax year.

Figure 4.17 shows that the Self Assessment large partnerships tax gap increased from 9.2% in 2005 to 2006 to 14.9% in 2012 to 2013 and has since decreased to 8.3% in 2023 to 2024.

The Self Assessment large partnerships tax gap estimate is projected in line with Self Assessment tax liability from 2022 to 2023.

Figure 4.17: Self Assessment large partnerships tax gap by value and as a percentage of theoretical tax liabilities, 2005 to 2006 up to 2023 to 2024

Notes for Figure 4.17:

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

Figure 4.18 shows the Self Assessment large partnerships tax gap, the Self Assessment large partnerships tax liability, and the theoretical Self Assessment large partnerships tax liability, which is the sum of the tax gap and tax liability, since 2019 to 2020.

The Self Assessment large partnerships tax gap fluctuated between £1.2 billion and £1.4 billion over the 5 years. The tax liability increased from £11.8 billion to £15.7 billion over the 5 years.

Figure 4.18: Self Assessment large partnerships tax gap, tax liability and theoretical tax liability, since 2019 to 2020 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2019-20	1.3	11.8	13.1
2020-21	1.2	13.8	15.0
2021-22	1.4	15.7	17.1
2022-23	1.4	15.6	17.1
2023-24	1.4	15.7	17.1

Notes for Figure 4.18:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

4. Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.

Figure 4.19 shows the Self Assessment large partnerships tax gap, and its components: gross tax gap, compliance yield and non-payment, since 2019 to 2020. The Self Assessment large partnerships tax gap is calculated as the gross tax gap plus non-payment, minus compliance yield.

The Self Assessment large partnerships gross tax gap increased from £1.5 billion in 2019 to 2020 to £1.7 billion in 2023 to 2024. Non-payment was broadly stable between £0.1 billion and £0.2 billion over the 5 years. Compliance yield was broadly stable between £0.4 billion and £0.5 billion over the 5 years.

Figure 4.19: Components of the Self Assessment large partnerships tax gap, since 2019 to 2020 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2019-20	1.5	0.4	0.1	1.3
2020-21	1.5	0.4	0.1	1.2
2021-22	1.7	0.5	0.2	1.4
2022-23	1.7	0.4	0.2	1.4
2023-24	1.7	0.4	0.2	1.4

Notes for Figure 4.19:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

Wealthy taxpayers in Self Assessment

Taxpayers in Self Assessment are defined as wealthy if their income is greater than £200,000 or they have assets equal to or above £2 million. Wealthy taxpayers have complex tax affairs and have tax liabilities which cut across the 3 Self Assessment tax gap components: business, non-business and large partnerships.

Figure 4.20 shows the wealthy taxpayers Self Assessment tax gap time-series in absolute terms and as a percentage of wealthy taxpayers theoretical Self Assessment tax liability.

The tax gap for wealthy taxpayers in Self Assessment is 4.5% of the theoretical tax liability for wealthy Self Assessment taxpayers, or £1.9 billion in absolute terms, in 2023 to 2024.

The wealthy taxpayers Self Assessment tax gap has been broadly stable since 2017 to 2018 at between 3.7% and 4.8%, down from 5.6% in 2016 to 2017.

For years before 2015 to 2016, the Self Assessment tax gap estimates for wealthy taxpayers are illustrative, based on the total Self Assessment tax gap, due to data not being in the required format for earlier years. The trend for these years therefore closely tracks the overall Self Assessment tax gap.

The wealthy Self Assessment tax gap estimate for the business and non-business components are projected in line with wealthy Self Assessment tax liability from 2022 to 2023 onwards.

Figure 4.20: Estimated wealthy Self Assessment tax gap

Notes for Figure 4.20:

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

Revisions

Figure 4.21 shows the revisions to the Self Assessment tax gap since the publication of the ‘Measuring tax gaps 2024 edition’.

There are small changes in the Self Assessment tax gap time-series. Settlement of long-running cases included in the REP for which we previously had to forecast the outcome and updating the forecasts for open cases is leading to slightly higher tax gap estimates in 2018 to 2019 and 2019 to 2020. These long-running cases settled for higher amounts than previously forecast. The 2021 to 2022 estimates are now based on Self Assessment business and non-business REP data rather than being projected from 2020 to 2021.

For ‘Measuring tax gaps 2025 edition’ we have updated some assumptions used to estimate non-payment. More detail can be found in the ‘Methodological annex’.

Figure 4.21: Revisions to the Self Assessment tax gap since the ‘Measuring tax gaps 2024 edition’

Notes for Figure 4.21:

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

2. MTG stands for ‘Measuring tax gaps’.

PAYE (Income Tax and NICs)

Summary

Employers are required to make returns under the PAYE regulations to account for Income Tax and NICs for their employees. The PAYE tax gap is the difference between amount of Income Tax and NICs that should be collected through PAYE due on earnings and other income from employment, and the amount that is actually paid. The scope of these figures also includes tax due on occupational pensions taxed through PAYE.

The PAYE tax gap is estimated using 3 components:

• the small businesses PAYE tax gap is estimated using an established bottom-up random enquiry methodology

• the mid-sized businesses PAYE tax gap is estimated using an established bottom-up statistical methodology

• the large businesses PAYE tax gap is estimated using an illustrative methodology

To evaluate the uncertainty of the PAYE tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’.

• the small businesses PAYE tax gap has ‘medium’ uncertainty
• the mid-sized businesses PAYE tax gap has ‘medium’ uncertainty
• the large businesses PAYE tax gap has ‘very high’ uncertainty

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

Figure 4.22 shows the PAYE tax gap time-series in absolute terms and as a percentage of theoretical tax liability.

The PAYE tax gap is 1.0% of the theoretical PAYE tax liability, or £3.9 billion in absolute terms, in the 2023 to 2024 tax year.

There has been an overall reduction in the PAYE tax gap from 1.6% to 1.0% between the 2005 to 2006 and 2023 to 2024 tax years. The tax gap decreased from 1.6% in 2005 to 2006 to 1.0% in 2018 to 2019. Since 2018 to 2019 the tax gap has been broadly stable between 0.9% and 1.1%.

The components of PAYE tax gap are projected in line with PAYE tax liability from 2022 to 2023 where sufficient actual data is not yet available.

Figure 4.22: PAYE tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2023 to 2024

Notes for Figure 4.22:

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

Figure 4.23 shows the PAYE tax gaps for small businesses, mid-sized businesses, large businesses and all businesses as a proportion of theoretical tax liability.

Generally, the PAYE tax gap is one of the lowest tax gaps compared to other tax regimes and since 2015 to 2016 it has been the lowest every year.

There has been a decline in the PAYE gap for small businesses from a high of 2.4% in 2015 to 2016 to 0.9% in 2023 to 2024.

The PAYE mid-sized businesses tax gap was volatile between 2015 to 2016 and 2020 to 2021 and peaked at 1.7% in 2017 to 2018. It has decreased to 0.8% in 2023 to 2024.

The PAYE large businesses tax gap is estimated at 1.1% in 2023 to 2024 and is an illustrative estimate.

Figure 4.23 PAYE tax gap as a percentage of total theoretical tax liability by component

Notes for Figure 4.23:

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

Revisions

Figure 4.24 shows the revisions to the overall PAYE tax gap since the publication of the ‘Measuring tax gaps 2024 edition’.

For ‘Measuring tax gaps 2025 edition’ we have updated some assumptions used to estimate non-payment. More detail can be found in the ‘Methodological annex’. Most of the revisions from 2018 to 2019 to 2022 to 2023 are due to this change in non-payment.

From 2014 to 2015 onwards there are generally minor upwards revisions in the mid-sized businesses PAYE tax gap. A larger upwards revision in 2019 to 2020 is due to the population now including some public bodies and charities.

Figure 4.24: Revisions to the PAYE tax gap since the ‘Measuring tax gaps 2024 edition’

Notes for Figure 4.24:

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

2. MTG stands for ‘Measuring tax gaps’.

Main findings

Figure 4.25 shows the overall PAYE tax gap, tax liability, and the theoretical liability, which is the sum of the tax gap and tax liability, since 2019 to 2020.

PAYE liability has increased from £300.2 billion in 2019 to 2020 to £409.3 billion in 2023 to 2024. The net tax gap has increased from £3.3 billion in 2019 to 2020 to £3.9 billion in 2023 to 2024.

The total theoretical PAYE liability has increased from £303.4 billion in 2019 to 2020 to £413.3 billion in 2023 to 2024.

Figure 4.25: PAYE tax gap, tax liability and theoretical tax liability, since 2019 to 2020 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2019-20	3.3	300.2	303.4
2020-21	3.0	304.8	307.9
2021-22	3.6	344.4	348.0
2022-23	3.6	382.6	386.2
2023-24	3.9	409.3	413.3

Notes for Figure 4.25:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

4. Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.

Figure 4.26 shows the overall PAYE tax gap, and its components: gross tax gap, compliance yield and non-payment, since 2019 to 2020. The overall PAYE tax gap is calculated as the gross tax gap plus non-payment, minus compliance yield.

The gross tax gap decreased from £2.5 billion in 2019 to 2020 to £1.9 billion in 2020 to 2021. It has increased to £2.4 billion in 2023 to 2024. Compliance yield was broadly stable between £0.1 billion and £0.3 billion in the past 5 years. Non-payment increased from £1.1 billion in 2019 to 2020 to £1.7 billion in 2022 to 2023 and 2023 to 2024.

The overall PAYE tax gap has increased from £3.3 billion in 2019 to 2020 to £3.9 billion in 2023 to 2024.

Figure 4.26: Components of the PAYE tax gap, since 2019 to 2020 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2019-20	2.5	0.3	1.1	3.3
2020-21	1.9	0.2	1.2	3.0
2021-22	2.4	0.1	1.4	3.6
2022-23	2.1	0.2	1.7	3.6
2023-24	2.4	0.2	1.7	3.9

Notes for Figure 4.26:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

Small businesses

Figure 4.27 shows the small businesses PAYE tax gap, and its components: gross tax gap, compliance yield and non-payment, since 2019 to 2020. The tax gap is calculated as the gross tax gap plus non-payment, minus compliance yield.

The gross gap has fluctuated between £0.2 billion and £0.5 billion over the last 5 years. Compliance yield has been broadly stable at around £0.1 billion over the 5 years. Non-payment has increased from £0.4 billion in 2019 to 2020 to £0.6 billion in 2023 to 2024. The overall small businesses PAYE tax gap has increased from £0.7 billion in 2019 to 2020 to £0.9 billion in 2023 to 2024.

Figure 4.27: Components of the small businesses PAYE tax gap, since 2019 to 2020 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2019-20	0.4	0.1	0.4	0.7
2020-21	0.3	<0.1	0.5	0.7
2021-22	0.5	<0.1	0.5	1.0
2022-23	0.2	<0.1	0.6	0.7
2023-24	0.4	0.1	0.6	0.9

Notes for Figure 4.27:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

Mid-sized businesses

Figure 4.28 shows the mid-sized businesses PAYE tax gap, and its components: gross tax gap, compliance yield and non-payment, since 2019 to 2020. The mid-sized businesses PAYE tax gap is calculated as the gross tax gap plus non-payment, minus compliance yield.

The gross tax gap decreased from £0.6 billion in 2019 to 2020 to £0.2 billion in 2020 to 2021. It then increased to £0.4 billion in 2023 to 2024. Compliance yield has remained stable around £0.1 billion over the 5 years.

Non-payment increased from £0.4 billion to £0.6 billion over the 5 years. The net tax gap increased from £0.7 billion in 2020 to 2021 to £1.0 billion in 2023 to 2024.

Figure 4.28: Components of the mid-sized businesses PAYE tax gap, since 2019 to 2020 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2019-20	0.6	0.1	0.4	0.9
2020-21	0.2	<0.1	0.5	0.7
2021-22	0.3	<0.1	0.5	0.8
2022-23	0.4	0.1	0.6	0.9
2023-24	0.4	0.1	0.6	1.0

Notes for Figure 4.28:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

Large businesses

Figure 4.29 shows the large businesses PAYE tax gap, and its components: gross tax gap, compliance yield and non-payment, since 2019 to 2020. The large businesses PAYE tax gap is calculated as the gross tax gap plus non-payment, minus compliance yield.

The gross tax gap is estimated using historical trends in the small businesses PAYE tax gap and has increased from £1.5 billion in 2019 to 2020 to £1.6 billion in 2023 to 2024 due to increasing large businesses PAYE liabilities.

Compliance yield has been broadly stable around £0.1 billion over the 5 years. Non-payment has increased from £0.3 billion to £0.5 billion over the 5 years.

The tax gap has increased from £1.6 billion to £2.0 billion over the 5 years.

Figure 4.29: Components of the large businesses PAYE tax gap, since 2019 to 2020 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2019-20	1.5	0.1	0.3	1.6
2020-21	1.4	0.1	0.3	1.6
2021-22	1.5	<0.1	0.4	1.9
2022-23	1.6	0.1	0.4	1.9
2023-24	1.6	0.1	0.5	2.0

Notes for Figure 4.29:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

Hidden economy (Income Tax, NICs and Capital Gains Tax)

Main findings

The term ‘hidden economy’ refers to sources of taxable economic activity that are entirely hidden from HMRC. It is estimated from 2 components:

• individuals who are employees in their legitimate occupation but do not declare earnings from other sources of income (moonlighters)
• individuals who do not declare any of their income to HMRC, be it earned or unearned (ghosts)

The hidden economy tax gap estimates focus on personal income taxes (Income Tax, NICs and Capital Gains Tax) not paid from moonlighters and ghosts. It does not consider other types of tax.

The hidden economy tax gap is estimated using a combination of established bottom-up management information and survey data.

To evaluate the uncertainty of the hidden economy tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’. The uncertainty rating for moonlighters is ‘high’ and ghosts is ‘very high’.

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

Figure 4.30 shows the hidden economy tax gap in absolute terms split by moonlighters and ghosts from 2005 to 2006 up to 2023 to 2024.

The hidden economy tax gap on personal income taxes is £1.5 billion in 2023 to 2024.

The hidden economy tax gap varied between £1.3 billion and £1.5 billion from 2005 to 2006 and 2023 to 2024.

The tax gap for moonlighters varied between £0.7 billion and £0.9 billion from 2005 to 2006 and 2023 to 2024.

The tax gap for ghosts increased from £0.4 billion in 2005 to 2006 to £0.6 billion in 2023 to 2024. It peaked at £0.7 billion in 2015 to 2016.

Figure 4.30: Hidden economy tax gap by value, 2005 to 2006 up to 2023 to 2024

Notes for Figure 4.30:

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

2. Figures are rounded to the nearest £0.1 billion.

3. Figures may not sum due to rounding.

Revisions

There are no revisions to the hidden economy tax gap since ‘Measuring tax gaps 2024 edition’.

Avoidance (Income Tax, NICs and Capital Gains Tax)

Main findings

Avoidance involves bending the rules of the tax system to try to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter, but not the spirit, of the law.

The avoidance tax gap relates to marketed avoidance schemes sold to one or more individuals and employers for a fee, with the aim of reducing their tax liabilities. It is made up of unpaid Income Tax, NICs and Capital Gains Tax that should, in theory, be paid to HMRC. This does not include other types of avoidance related to Corporation Tax or VAT, for example.

The avoidance tax gap is estimated net of the results of any HMRC compliance activity using an established bottom-up method. This is done using HMRC’s marketed avoidance management information system, which contains information about identified avoidance schemes used by individuals, trusts, partnerships and employers.

To evaluate the uncertainty of our avoidance tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’. The avoidance tax gap estimate is ‘high’.

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

Figure 4.31 shows the avoidance tax gap time-series in absolute terms.

The avoidance tax gap is £0.2 billion for the tax year 2023 to 2024.

There has been a reduction in the avoidance tax gap from £1.5 billion in 2005 to 2006 to £0.2 billion in 2023 to 2024. The avoidance tax gap is projected in 2022 to 2023 and 2023 to 2024 by applying uplifts to the underlying number of users of avoidance schemes based on previous years.

Figure 4.31: Avoidance tax gap by value 2005 to 2006 up to 2023 to 2024

Notes for Figure 4.31:

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

2. The tax gap estimates are projected in 2022 to 2023 and 2023 to 2024 by applying uplifts to the underlying user numbers based on previous years.

Revisions

Figure 4.32 shows the revisions to the avoidance tax gap since the publication of the ‘Measuring tax gaps 2024 edition’.

For ‘Measuring tax gaps 2025 edition’ we have made a change to our methodology for the avoidance tax gap estimate and revised our time-series back to 2015 to 2016 in line with this change. The existing methodology from previous publications still applies to the time-series prior to 2015 to 2016, which results in no revisions being made in ‘Measuring tax gaps 2025 edition’ between 2005 to 2006 and 2014 to 2015.

The improved methodology estimates how much Income Tax, NICs and Capital Gains Tax each user of a marketed avoidance scheme has avoided in a tax year, referred to as tax at risk. This differs from the previous methodology which estimated the tax at risk at the scheme level. More detail can be found in the ‘Methodological annex’.

Modelling the tax at risk at a user level rather than a scheme level has caused an upward revision in 2015 to 2016 and 2016 to 2017, and a downward revision from 2017 to 2018 onwards. The revisions are generally caused by changes in both the average tax at risk and the number of users continuing to avoid tax in the population after HMRC compliance activity.

The length of time we are projecting has been shortened from 3 years to 2 years in the new methodology. This means 2020 to 2021 and 2021 to 2022 estimates are now based on data, compared to ‘Measuring tax gaps 2024 edition’. The projections for 2022 to 2023 and 2023 to 2024 are now based on applying uplifts to avoidance user numbers based on previous years data. This replaces the old projection method from ‘Measuring tax gaps 2024 edition’.

HMRC may not identify all avoidance schemes which may lead to an underestimation of the tax gap which cannot be quantified and may lead to future revisions in the time-series as more are identified.

Figure 4.32: Revisions to avoidance tax gap since the ‘Measuring tax gaps 2024 edition’

Notes for Figure 4.32:

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

2. MTG stands for ‘Measuring tax gaps’.