Official Statistics

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

Updated 22 June 2023

Summary

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

• the Self Assessment tax gap is estimated using random enquiry programme data and a combination of established and experimental methodologies 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 employer compliance tax gap is estimated using random enquiry programme data, statistical and experimental 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 from 2 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 related to marketed avoidance schemes sold primarily to individuals is estimated using an experimental bottom-up method

To evaluate the uncertainty of the Income Tax, National Insurance contributions 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, the large partnerships tax gap estimate has ‘very high’ uncertainty

• the PAYE employer compliance tax gap: small businesses PAYE employer compliance tax gaps estimate has ‘medium’ uncertainty, mid-sized businesses PAYE employer compliance tax gap estimate has ‘high’ uncertainty, and large businesses PAYE employer compliance tax gap estimate has ‘very high’ uncertainty

• the hidden economy tax gap: moonlighters estimate has ‘medium’ uncertainty and ghosts estimate has ‘high’ uncertainty

• the avoidance tax gap related to marketed avoidance schemes has ‘very high’ uncertainty

Main findings

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

The tax gap for Income Tax, National Insurance contributions and Capital Gains Tax is 3.0% of the theoretical Income Tax, National Insurance contributions and Capital Gains Tax liability, or £12.7 billion in absolute terms, in the 2021 to 2022 tax year.

There has been a long-term reduction in the Income Tax, National Insurance contributions and Capital Gains Tax tax gap from 4.5% in 2005 to 2006 to 3.0% in 2021 to 2022. It peaked at 5.2% in 2013 to 2014 and 2014 to 2015 and fell to 4.1% 2015 to 2016. Since 2016 to 2017, the Income Tax, National Insurance contributions and Capital Gains Tax gap has been more stable between 2.9% and 3.6%.

Components of the Income Tax, National Insurance contributions and Capital Gains Tax gap are projected in 2020 to 2021 and 2021 to 2022 where sufficient actual data is not yet available. Projections are based on projecting the 2019 to 2020 estimates in line with liabilities.

Figure 4.1: Income Tax, National Insurance contributions and Capital Gains Tax gap by value and as a percentage of theoretical tax liabilities, 2005 to 2006 up to 2021 to 2022

Notes for Figure 4.1

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

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

Figure 4.2: Income Tax, National Insurance contributions 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, National Insurance contributions and Capital Gains Tax’.

Figure 4.3 shows the proportion of the Self Assessment, PAYE employer compliance, hidden economy and avoidance tax gaps of the Income Tax, National Insurance contributions and Capital Gains Tax gap since 2017 to 2018. Self Assessment is the largest component in each year, followed by PAYE employer compliance, hidden economy and then avoidance.

Figure 4.3: Shares of Income Tax, National Insurance contributions and Capital Gains Tax gap by component

Year	Self Assessment	PAYE employer compliance	Hidden economy	Avoidance
2017-18	51.1%	28.8%	13.4%	6.7%
2018-19	57.7%	26.1%	11.3%	4.9%
2019-20	54.2%	27.8%	13.1%	4.9%
2020-21	57.7%	24.8%	12.6%	4.9%
2021-22	61.9%	23.2%	10.8%	4.1%

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%. As a result, components may not appear to sum.

Self Assessment tax gap (Income Tax, National Insurance contributions 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 random enquiry programme 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 random enquiry programme and operational enquiry data

• the large partnerships (partnerships with 5 or more partners) Self Assessment tax gap, illustratively estimated using an experimental approach by assuming the tax at risk will be a similar proportion of liabilities to all other Self Assessment taxpayers

The Self Assessment estimates are subject to increased uncertainty due to COVID-19, and specific adjustments to the Self Assessment tax gap model have been made to maintain validity of 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 estimate is rated ‘very high’ uncertainty.

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 11.2% of the theoretical Self Assessment tax liability, or £7.8 billion in absolute terms, in the 2021 to 2022 tax year.

There has been a long-term reduction in the Self Assessment tax gap, from 14.9% in 2005 to 2006 to 11.2% in the 2021 to 2022 tax year. Between 2005 to 2006 and 2014 to 2015 the estimate increased from 14.9% to 21.9%. The Self Assessment tax gap then fell to 14.0% in 2015 to 2016. Since 2015 to 2016, the tax gap has trended marginally downwards, varying between 10% and 14%.

The estimates from 2020 to 2021 for the business and non-business components are based on projecting the 2019 to 2020 gross percentage tax gap estimate in line with the Self Assessment liability in those years.

Due to substantial year-on year growth in the Self Assessment liability in 2021 to 2022, the projected Self Assessment tax gap is estimated to increase from £6.1 billion in 2020 to 2021 to £7.8 billion in 2021 to 2022.

The projected Self Assessment percentage tax gap increased from 10.4% in 2020 to 2021 to 11.2% in 2021 to 2022. This increase occurred as Self Assessment business taxpayers, where the percentage tax gap is higher, formed a greater proportion of liabilities in 2021 to 2022.

Figure 4.4: Self Assessment tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2021 to 2022

Notes for Figure 4.4

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

Figure 4.5 shows the overall, business (self-employed and small partnerships), non-business and large partnerships (partnerships with 5 or more partners) Self Assessment gaps as a proportion of theoretical tax liabilities. The Self Assessment business percentage tax gap estimate is the highest relative to the other components, generally more than double the size of the gaps for Self Assessment 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, Self Assessment tax liability and the Self Assessment theoretical tax liability, which is the sum of the tax gap and tax liability, since 2017 to 2018.

The Self Assessment tax liability has increased year-on-year in this time period, with the largest growth between 2020 to 2021 and 2021 to 2022. The net tax gap for 2020 to 2021 and 2021 to 2022 is projected in line with the Self Assessment liability, so there is similar growth in the net tax gap estimates in those years. Preceding this, the net tax gap increased from £5.4 billion in 2017 to 2018 to £7.1 billion in 2018 to 2019 and declined to £5.6 billion in 2019 to 2020.

The Self Assessment percentage tax gap, the relative size of the Self Assessment net gap to the Self Assessment theoretical tax liability, was 11.4% of theoretical liabilities in 2017 to 2018, 13.7% in 2018 to 2019 and broadly stable in subsequent years at between 10.6% and 11.2%.

Figure 4.6: Self Assessment tax gap, tax liability and theoretical tax liability, since 2017 to 2018 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2017-18	5.4	42.1	47.5
2018-19	7.1	44.5	51.5
2019-20	5.6	46.9	52.5
2020-21	6.1	52.2	58.3
2021-22	7.8	62.5	70.4

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. As a result, components may not appear to sum.
3. Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.

Figure 4.7 shows the Self Assessment tax gap, and its components: gross tax gap, compliance yield and non-payment since 2017 to 2018. The Self Assessment tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

For ‘Measuring tax gaps 2023 edition’, adjustments have been made to the Self Assessment non-payment and compliance yield figures to take account of the impact of COVID-19 and maintain the validity of the time-series. These adjustments follow the methodology introduced in the ‘Measuring tax gaps 2022 edition’ and are explained in the Methodological annex. Figure 4.7 shows our adjusted non-payment figure remains stable around £0.2 billion, whilst adjusted compliance yield increases from £1.5 billion in 2017 to 2018 to £1.9 billion in 2021 to 2022.

The Self Assessment gross tax gap and Self Assessment net tax gap follow the same trend and are generally growing in absolute terms across this 5-year period. The Self Assessment gross tax gap increases from £6.7 billion in 2017 to 2018, to £9.5 billion in 2021 to 2022. The Self Assessment net tax gap increases from £5.4 billion in 2017 to 2018 to £7.8 billion in 2021 to 2022.

Figure 4.7: Components of the Self Assessment tax gap, since 2017 to 2018 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2017-18	6.7	1.5	0.2	5.4
2018-19	8.0	1.3	0.3	7.1
2019-20	7.0	1.6	0.2	5.6
2020-21	7.7	1.8	0.2	6.1
2021-22	9.5	1.9	0.2	7.8

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. As a result, components may not appear to sum.

Proportion of Self Assessment returns leading to under-declaration of Self Assessment tax liability

The proportion of Self Assessment returns leading to under-declaration of Self Assessment tax liability can be estimated from the results of the Self Assessment random enquiry programme. Figure 4.8 shows the estimated proportion for business and non-business taxpayers. This has been broadly stable since 2015 to 2016, ranging between 22% and 25%. Across these 5 years, just over half of Self Assessment returns with under-declared tax liability had an under-declaration over £1,000 whilst around a third with under-declared tax liability had an under-declaration below £500.

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 rounded to the nearest 1%. As a result, components may not appear to sum.

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 18.5% of the theoretical Self Assessment business tax liability, or £5.0 billion in absolute terms, in the 2021 to 2022 tax year.

There has been a long-term reduction in the Self Assessment business percentage tax gap, from 20.6% in 2005 to 2006 to 18.5% in the 2021 to 2022 tax year, following the trend of the overall Self Assessment tax gap.

The Self Assessment business tax gap estimate is projected in 2020 to 2021 and 2021 to 2022. The projection is based on projecting the 2019 to 2020 estimate in line with the liability.

Figure 4.9: Self Assessment business tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2021 to 2022

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, 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 2017 to 2018.

Self Assessment business tax liability has increased each year in this time period, with substantial growth in 2021 to 2022. The net tax gap is observed to be fluctuating around an average of £4.0 billion between 2017 to 2018 and 2020 to 2021, increasing to £5.0 billion in 2021 to 2022.

Figure 4.10: Self Assessment business tax gap, tax liability and theoretical tax liability, since 2017 to 2018 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2017-18	3.3	13.9	17.2
2018-19	4.3	13.9	18.1
2019-20	3.5	15.6	19.1
2020-21	3.7	16.9	20.6
2021-22	5.0	22.2	27.2

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. As a result, components may not appear to sum.
3. 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 2017 to 2018. The Self Assessment business tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

Non-payment was stable at £0.1 billion in each of these years. Compliance yield increased from £0.2 billion in 2017 to 2018 to £0.6 billion in 2021 to 2022. The gross tax gap fluctuated around an average of £4.3 billion over the 5 years, increasing from £3.4 billion in 2017 to 2018 to £5.5 billion in 2021 to 2022.

Figure 4.11: Components of the Self Assessment business tax gap, since 2017 to 2018 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2017-18	3.4	0.2	0.1	3.3
2018-19	4.5	0.3	0.1	4.3
2019-20	3.9	0.5	0.1	3.5
2020-21	4.2	0.5	0.1	3.7
2021-22	5.5	0.6	0.1	5.0

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. As a result, components may not appear to sum.

Figure 4.12 shows the estimated proportion of incorrect Self Assessment returns leading to under-declaration of liabilities for business taxpayers only. This has been broadly stable since 2015 to 2016, ranging between 22% and 27%. On average over these 5 years, around 60% of Self Assessment business returns with under-declared tax liability had an under-declaration over £1,000. Around 25% with under-declared tax liability had an under-declaration less than £500.

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 rounded to the nearest 1%. As a result, components may not appear to sum.

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 4.9% of the theoretical Self Assessment non-business tax liability, or £1.3 billion in absolute terms, in the 2021 to 2022 tax year.

There has been a long-term reduction in the Self Assessment non-business tax gap, from 6.2% in 2005 to 2006 to 4.9% in the 2021 to 2022 tax year. There have been some fluctuations in that time, and it reached a peak of 14.1% in 2013 to 2014. Since 2014 to 2015 there has been a long-term downward trend.

The Self Assessment non-business tax gap estimate is projected in 2020 to 2021 and 2021 to 2022. The projection is based on projecting the 2019 to 2020 estimate in line with the liability.

Figure 4.13: Self Assessment non-business tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2021 to 2022

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, 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 2017 to 2018.

Self Assessment non-business tax liability has increased each year in this time period, with substantial growth in 2020 to 2021 and 2021 to 2022. The net tax gap is observed to be fluctuating around an average of £1.2 billion.

Figure 4.14: Self Assessment non-business tax gap, tax liability and theoretical tax liability, since 2017 to 2018 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2017-18	1.2	17.2	18.4
2018-19	1.6	18.9	20.5
2019-20	0.9	19.5	20.5
2020-21	1.0	21.5	22.5
2021-22	1.3	24.6	25.9

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. As a result, components may not appear to sum.
3. 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 2017 to 2018. The Self Assessment non-business tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

Non-payment was stable at £0.1 billion in each of these years. Compliance yield was broadly stable around £0.8 billion. The gross tax gap was broadly stable around an average of £1.9 billion over the 5 years.

Figure 4.15: Components of the Self Assessment non-business tax gap, since 2017 to 2018 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2017-18	2.0	0.9	0.1	1.2
2018-19	2.2	0.7	0.1	1.6
2019-20	1.6	0.8	0.1	0.9
2020-21	1.8	0.8	0.1	1.0
2021-22	2.0	0.8	0.1	1.3

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. As a result, components may not appear to sum.

Figure 4.16 shows that between 2015 to 2016 and 2019 to 2020 the proportion of taxpayers with under-declared liabilities was lower for non-business taxpayers than for business taxpayers (shown in Figure 4.12).

The proportion of incorrect Self Assessment returns from non-business taxpayers fell from 23% to 18% between 2015 to 2016 and 2019 to 2020. A higher proportion of Self Assessment non-business taxpayer returns with under-declared tax liability had an under-declaration less than £500 compared to Self Assessment business taxpayer returns, at around 42% over the 5 years.

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 rounded to the nearest 1%. As a result, components may not appear to sum.

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 random enquiry programme.

The tax gap for Self Assessment large partnerships is 9.0% of the theoretical Self Assessment large partnerships tax liability, or £1.6 billion in absolute terms, in the 2021 to 2022 tax year.

Figure 4.17 shows that the Self Assessment large partnerships tax gap was the same in tax years 2005 to 2006 and 2021 to 2022 at 9.0%. It reached a peak of 15.1% in 2014 to 2015, followed by a 40% decline in 2015 to 2016 to 9.1%. Since 2015 to 2016 the Self Assessment large partnerships tax gap has been broadly stable, varying between 7.4% and 9.2%.

An additional projection for 2019 to 2020 is made for the illustrative Self Assessment large partnerships estimate. This is in comparison to the other components of the Self Assessment tax gap which are projected for 2020 to 2021 and 2020 to 2021. The projection is done by projecting the 2018 to 2019 estimate in line with the change in liability.

Figure 4.17: Self Assessment large partnerships tax gap by value and as a percentage of theoretical tax liabilities, 2005 to 2006 up to 2021 to 2022

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, 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 2017 to 2018.

The Self Assessment large partnerships tax gap and tax liability have increased over the 5 years. The tax gap increased from £0.9 billion to £1.6 billion. The tax liability increased from £11.0 billion to £15.7 billion, with substantial growth in 2020 to 2021 and 2021 to 2022. The Self Assessment large partnerships estimate is projected from 2019 to 2020.

Figure 4.18: Self Assessment large partnerships tax gap, tax liability and theoretical tax liability, since 2017 to 2018 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2017-18	0.9	11.0	11.9
2018-19	1.2	11.7	12.8
2019-20	1.1	11.8	12.9
2020-21	1.3	13.8	15.1
2021-22	1.6	15.7	17.2

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. As a result, components may not appear to sum.
3. 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 2017 to 2018. The Self Assessment large partnerships tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

The Self Assessment large partnerships net tax gap and gross tax gap have increased over this time period. Non-payment has been broadly stable around £0.1 billion. Compliance yield has been broadly stable around £0.4 billion.

Figure 4.19: Components of the Self Assessment large partnerships tax gap, since 2017 to 2018 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2017-18	1.2	0.4	0.1	0.9
2018-19	1.4	0.3	0.1	1.2
2019-20	1.5	0.4	0.1	1.1
2020-21	1.7	0.4	0.1	1.3
2021-22	2.0	0.5	0.1	1.6

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. As a result, components may not appear to sum.

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 4.1% of the theoretical tax liability for wealthy Self Assessment taxpayers, or £1.5 billion in absolute terms, in 2021 to 2022.

The wealthy taxpayers Self Assessment tax gap has been broadly stable since 2017 to 2018 at between 3.6% and 4.1%, down from around 5.0% in 2015 to 2016 and 2016 to 2017.

For years up to 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 largely mirrors that of the overall Self Assessment tax gap.

The wealthy Self Assessment tax gap estimate from 2020 to 2021 for the business and non-business components are based on projecting the 2019 to 2020 gross percentage tax gap estimate in line with the liability. An additional projection is made for the illustrative Self Assessment large partnerships estimate for 2019 to 2020.

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 2022 edition’.

The Self Assessment tax gap time-series is revised downwards from ‘Measuring tax gaps 2022 edition’ for 2019 to 2020 and 2020 to 2021 and upwards for 2018 to 2019. This is due to replacing previously projected estimates for 2018 to 2019 and 2019 to 2020 for Self Assessment business and non-business with random enquiry programme data.

Settlement of long-running cases included in the random enquiry programme for which we previously had to forecast the outcome and updating the yield forecasts for open cases is leading to revisions in earlier tax years. There is a refinement in the method for compiling random enquiry results to ensure only tax yield captured in the random enquiry programme that is relevant to the tax year is included.

Figure 4.21: Revisions to Self Assessment tax gap since the ‘Measuring tax gaps 2022 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 employer compliance (Income Tax and National Insurance contributions)

Summary

Employers are required to make returns under the PAYE regulations to account for Income Tax and National Insurance contributions for their employees. The PAYE employer compliance tax gap is the difference between amount of Income Tax and National Insurance contributions 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 employer compliance tax gap is estimated using 3 components:

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

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

• The large businesses PAYE employer compliance tax gap is estimated using an experimental methodology.

To evaluate the uncertainty of the PAYE employer compliance tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’. The small businesses PAYE employer compliance tax gap estimate has ‘medium’, the mid-sized businesses PAYE employer compliance tax gap estimate has ‘high’, and the large businesses PAYE employer compliance tax gap estimate has ‘very high’ uncertainty.

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

The PAYE employer compliance tax gap is 0.8% of the theoretical PAYE tax liability, or £2.9 billion in absolute terms, in the 2021 to 2022 tax year.

There has been an overall reduction in the PAYE employer compliance tax gap percentage from 1.6% to 0.8% between the 2005 to 2006 and 2021 to 2022 tax years. The tax gap percentage was stable between 2005 to 2006 and 2013 to 2014, varying between 1.3% and 1.7%. Since 2013 to 2014 the tax gap percentage has declined from 1.7% to 0.8% in both 2020 to 2021 and 2021 to 2022.

Components of the PAYE tax gap are projected in 2020 to 2021 and 2021 to 2022 where sufficient actual data is not yet available. Projections are based on projecting the 2019 to 2020 estimates in line with PAYE liabilities.

Figure 4.22: PAYE employer compliance tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2021 to 2022

Notes for Figure 4.22

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

Figure 4.23 shows small businesses, mid-sized businesses, large businesses and all businesses PAYE employer compliance tax gaps as a proportion of theoretical tax liabilities.

Up until 2018 to 2019 small businesses generally had a higher percentage tax gap than the other 2 customer groups. The mid-sized businesses PAYE employer compliance tax gap has generally been the lowest tax gap percentage since 2015 to 2016.

There has been a decline in the PAYE employer compliance percentage tax gap for small businesses from 2.0% in 2015 to 2016 to 0.8% in 2021 to 2022. The PAYE employer compliance mid-sized businesses percentage tax gap has declined from 1.6% in 2013 to 2014 to 0.5% in 2021 to 2022. The PAYE employer compliance large businesses percentage tax gap is estimated at 1.1% in 2021 to 2022 and is an illustrative estimate.

Figure 4.23 PAYE employer compliance 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 employer compliance tax gap percentage since the publication of the ‘Measuring tax gaps 2022 edition’.

There is a small change in how the experimental large businesses PAYE employer compliance tax gap accounts for avoidance, leading to minor upward revisions between 2005 to 2006 and 2021 to 2022.

From 2014 to 2015 onwards there are minor upward revisions in the mid-sized businesses PAYE employer compliance tax gap percentage, primarily due to compliance cases settling for more compliance yield than previously forecast.

There is a downward revision to the small businesses PAYE employer compliance tax gap estimate for 2020 to 2021 due to random enquiry cases for 2020 to 2021 settling for lower yield than forecast.

Figure 4.24: Revisions to the PAYE employer compliance tax gap percentage since the ‘Measuring tax gaps 2022 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 employer compliance tax gap, tax liability, and the theoretical liability, which is the sum of the tax gap and tax liability, since 2017 to 2018.

PAYE liabilities have increased from £280.0 billion in 2017 to 2018 to £344.4 billion in 2021 to 2022. Despite this, the net tax gap has remained stable, going from £3.1 billion to £2.9 billion in the last 5 years. Hence, the PAYE employer compliance tax gap percentage has generally been decreasing since 2017 to 2018.

Figure 4.25: PAYE employer compliance tax gap, tax liability and theoretical tax liability, since 2017 to 2018 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2017-18	3.1	280.0	283.1
2018-19	3.2	294.3	297.5
2019-20	2.9	300.2	303.0
2020-21	2.6	304.8	307.4
2021-22	2.9	344.4	347.3

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. As a result, components may not appear to sum.
3. 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 employer compliance tax gap, and its components: gross tax gap, compliance yield and non-payment since 2017 to 2018. The overall PAYE employer compliance tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

The gross tax gap decreased from £2.4 billion in 2017 to 2018 to £2.1 billion in 2020 to 2021. The gross tax gap has since increased to £2.6 billion in 2021 to 2022. Compliance yield was broadly stable between £0.2 billion and £0.3 billion in the past 5 years. Non-payment decreased from £1.3 billion in 2018 to 2019 to £0.5 billion in 2021 to 2022.

Despite the gross tax gap increasing to £2.6 billion in 2021 to 2022, as non-payment has declined to £0.5 billion the overall PAYE employer compliance tax gap has been broadly stable in the last 5 years.

Figure 4.26: Components of the PAYE employer compliance tax gap, since 2017 to 2018 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2017-18	2.4	0.3	1.0	3.1
2018-19	2.2	0.3	1.3	3.2
2019-20	2.1	0.3	1.0	2.9
2020-21	2.1	0.2	0.7	2.6
2021-22	2.6	0.2	0.5	2.9

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. As a result, components may not appear to sum.

Small businesses

Figure 4.27 shows the small businesses PAYE employer compliance tax gap, and its components: gross tax gap, compliance yield and non-payment since 2017 to 2018. The small businesses PAYE employer compliance tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

The gross gap decreased year-on-year from £0.7 billion in 2017 to 2018 to £0.2 billion in 2020 to 2021, but subsequently increased in 2021 to 2022 to £0.5 billion.

Both non-payment and compliance yield were broadly stable between 2017 to 2018 and 2019 to 2020, decreasing slightly in the last 2 years.

Figure 4.27: Components of the small businesses PAYE employer compliance tax gap, since 2017 to 2018 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2017-18	0.7	0.1	0.4	1.0
2018-19	0.6	0.1	0.5	0.9
2019-20	0.4	0.1	0.4	0.7
2020-21	0.2	<0.1	0.3	0.5
2021-22	0.5	<0.1	0.2	0.6

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. As a result, components may not appear to sum.

Mid-sized businesses

Figure 4.28 shows the mid-sized businesses PAYE employer compliance tax gap, and its components: gross tax gap, compliance yield and non-payment since 2017 to 2018. The mid-sized businesses PAYE employer compliance tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

The gross tax gap remained broadly stable at around £0.3 billion in the last 5 years. Compliance yield has remained constant at £0.1 billion between 2017 to 2018 and 2021 to 2022.

Non-payment was around £0.4 billion between 2017 to 2018 and 2019 to 2020, then declined in the last 2 years, to £0.2 billion in 2021 to 2022. This has led to the mid-sized businesses PAYE employer compliance tax gap being stable between £0.5 billion and £0.7 billion in the last 5 years.

Figure 4.28: Components of the mid-sized businesses PAYE employer compliance tax gap, since 2017 to 2018 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2017-18	0.3	0.1	0.4	0.5
2018-19	0.3	0.1	0.5	0.7
2019-20	0.3	0.1	0.4	0.6
2020-21	0.3	0.1	0.3	0.5
2021-22	0.4	0.1	0.2	0.5

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. As a result, components may not appear to sum.

Large businesses

The PAYE employer compliance tax gap from large businesses is fixed at 1.1% of large employer theoretical PAYE liability since 2014 to 2015. This is an illustrative estimate.

Figure 4.29 shows the large businesses PAYE employer compliance tax gap, and its components: gross tax gap, compliance yield and non-payment since 2017 to 2018. The large businesses PAYE employer compliance tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

The gross tax gap is estimated using historical trends in the small businesses PAYE employer compliance tax gap. This was broadly stable around £1.4 billion to £1.5 billion between 2017 to 2018 and 2020 to 2021, then increased to £1.8 billion in 2021 to 2022 due to increasing PAYE liabilities.

Compliance yield has been broadly stable around £0.1 billion in the last 5 years. Non-payment has declined from £0.3 billion between 2017 to 2018 and 2019 to 2020 to around £0.1 billion in 2021 to 2022.

The changes in gross tax gap result in an increase in the large businesses PAYE employer compliance tax gap from £1.6 billion between 2017 to 2018 and 2020 to 2021 to £1.9 billion in 2021 to 2022.

Figure 4.29: Components of the large businesses PAYE employer compliance tax gap, since 2017 to 2018 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2017-18	1.4	0.1	0.3	1.6
2018-19	1.4	0.1	0.3	1.6
2019-20	1.5	0.1	0.3	1.6
2020-21	1.5	0.1	0.2	1.6
2021-22	1.8	<0.1	0.1	1.9

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. As a result, components may not appear to sum.

Hidden economy (Income Tax, National Insurance contributions 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 not paid (Income Tax, National Insurance contributions and Capital Gains Tax) from moonlighters and ghosts defined above. 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 ‘medium’ and ghosts is ‘high’.

Figure 4.30 shows the hidden economy tax gap in absolute terms split by moonlighters and ghosts from 2005 to 2006 up to 2021 to 2022.

The hidden economy tax gap on personal income taxes is £1.4 billion in 2021 to 2022.

The hidden economy tax gap increased from £1.3 billion to £1.5 billion between the 2005 to 2006 and 2015 to 2016 tax years. It decreased to £1.4 billion in 2021 to 2022, drawing on data from the latest Hidden Economy Survey for the tax year 2021 to 2022.

The tax gap for moonlighters decreased from £0.9 billion to £0.8 billion between the tax years 2005 to 2006 and 2021 to 2022. It reached a low of £0.7 billion in 2020 to 2021.

The tax gap for ghosts increased from £0.4 billion to £0.6 billion between the tax years 2005 to 2006 and 2021 to 2022. It peaked at £0.7 billion in 2015 to 2016.

Figure 4.30: Hidden economy tax gap by value, 2005 to 2006 up to 2021 to 2022

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. As a result, components may not appear to sum.

Revisions

Figure 4.31 shows the revisions to the hidden economy tax gap since ‘Measuring tax gaps 2022 edition’. The hidden economy tax gap has been revised downwards since ‘Measuring tax gaps 2022 edition’ because of 3 key updates to our data and methodology.

Firstly, data from the Hidden Economy Survey Wave 2 published in 2023 is used in ‘Measuring tax gaps 2023 edition`. Previously, we projected data from Wave 1 of the survey, which was published in 2017 and used for the tax year 2015 to 2016. This update has led to a downward revision in our estimates from 2015 to 2016 onwards. For more information on the first Hidden Economy Survey, go to GOV.UK.

Secondly, we corrected how we grossed up the Hidden Economy Survey Wave 1 data to the population in the earned income analysis for both ghosts and moonlighters. This reduced the estimate in the tax year 2015 to 2016 by £0.2 billion. For the tax years between 2005 to 2006 and 2015 to 2016, this estimate is projected backwards, hence, the hidden economy tax gap is revised downwards between 2005 to 2006 and 2015 to 2016.

Finally, an updated data-matching exercise of administrative data and third-party information was conducted for the 2019 to 2020 tax year, which informs our tax gap estimate for the unearned income of moonlighters. This causes a downward revision of around £0.2 billion between tax years 2014 to 2015 and 2019 to 2020.

Figure 4.31: Revisions to tax gap on personal income taxes due to the hidden economy since the ‘Measuring tax gaps 2022 edition’

Notes for Figure 4.31

1. The full data series can be seen in the online tables.
2. MTG stands for ‘Measuring tax gaps’.

Avoidance (Income Tax, National Insurance contributions and Capital Gains Tax)

Main findings

The avoidance tax gap relates to marketed avoidance schemes sold primarily to individuals and is made up of unpaid Income Tax, National Insurance contributions and Capital Gains Tax that should, in theory, be paid to HMRC.

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.

This does not include other types of avoidance related to Corporation Tax or VAT, for example.

The avoidance tax gap is estimated using an experimental bottom-up method. This is done using HMRC’s 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 ‘very high’.

Figure 4.32 shows the avoidance tax gap time-series in absolute terms.

The avoidance tax gap related to marketed avoidance schemes sold primarily to individuals and made up of unpaid Income Tax, National Insurance contributions and Capital Gains Tax is £0.5 billion for the tax year 2021 to 2022.

There has been a reduction in the avoidance tax gap from £1.5 billion to £0.5 billion between the tax years 2005 to 2006 and 2021 to 2022. Since 2012 to 2013 the avoidance tax gap estimate has generally decreased. The avoidance tax gap estimate has been broadly stable at £0.5 billion since 2019 to 2020.

Figure 4.32: Avoidance tax gap by value 2005 to 2006 up to 2021 to 2022

Notes for Figure 4.32

1. The full data series can be seen in the online tables.
2. The tax gap estimates for 2020 to 2021 and 2021 to 2022 are projected in line with 2019 to 2020.

Revisions

Figure 4.33 shows the revisions to the avoidance tax gap since the publication of the ‘Measuring tax gaps 2022 edition’. Between publications we see some revisions to estimates associated with changes in the data, due to cases closing for higher or lower yields than was predicted.

The peak seen in ‘Measuring tax gaps 2022 edition’ for 2017 to 2018 has reduced and the tax gap estimates for 2016 to 2017 and 2018 to 2019 have generally increased, due to regular updates to the data.

Given limited data available for the most recent tax years, the 2019 to 2020 tax gap estimate has been used to derive an estimate for 2020 to 2021. This is done by projecting the 2019 to 2020 tax gap estimate in line with total Income Tax, National Insurance contributions and Capital Gains Tax liabilities. The estimate for the 2021 to 2022 tax year is then set equal to the 2020 to 2021 estimate in line with previous publications.

Figure 4.33: Revisions to avoidance tax gap since the ‘Measuring tax gaps 2022 edition’.

Notes for Figure 4.33

1. The full data series can be seen in the online tables.
2. MTG stands for ‘Measuring tax gaps’.