5. Tax gaps: Corporation Tax
Updated 22 June 2023
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Total Corporation Tax
Summary
The Corporation Tax gap is estimated using 3 components:
-
the small businesses Corporation Tax gap is estimated using an established bottom-up random enquiry methodology
-
the mid-sized businesses Corporation Tax gap is estimated using an established bottom-up statistical methodology
-
the large businesses Corporation Tax gap is estimated using an established bottom-up statistical methodology
To evaluate the uncertainty of our Corporation Tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’. The small and mid-sized businesses Corporation Tax gap estimates both have ‘medium’ and the large businesses Corporation Tax gap estimate has ‘high’ uncertainty.
Figure 5.1 shows the Corporation Tax gap time-series in absolute terms and as a percentage of theoretical Corporation Tax liability.
The tax gap for Corporation Tax is 13.3% of the theoretical Corporation Tax liability, or £10.6 billion in absolute terms, in the tax year 2021 to 2022.
The Corporation Tax gap declined from 11.4% in 2005 to 2006 to its lowest percentage of 6.3% in 2011 to 2012. Since 2011 to 2012 the Corporation Tax gap percentage has increased to 13.3% in 2021 to 2022. The estimates for 2021 to 2022 are projected based on the latest available estimates in line with liabilities. Small businesses and mid-sized businesses are projected from 2019 to 2020 and large businesses from 2016 to 2017.
Figure 5.1: Corporation Tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2021 to 2022
Notes for Figure 5.1
- The full data series can be seen in the online tables.
Figure 5.2 shows the small businesses, mid-sized businesses, large businesses and all businesses Corporation Tax gaps as a proportion of theoretical tax liabilities. The percentage tax gap estimates for small businesses Corporation Tax are the highest across the time-series and large businesses Corporation Tax gap the lowest.
The increase in the Corporation Tax gap from 9.3% in 2018 to 2019 to 12.6% in 2019 to 2020 is primarily due to increases in the small businesses tax gap, which has increased from 20.4% to 29.4% in the same period.
Figure 5.2 Corporation Tax gap as a percentage of total theoretical tax liabilities
Notes for Figure 5.2
- The full data series can be seen in the online tables.
- Further details of the customer group classification are available in the Chapter 1 and in the Methodological annex.
Main findings
Figure 5.3 shows the Corporation Tax gap, tax liability, and the theoretical tax liability, which is the sum of the tax gap and tax liability, since 2017 to 2018.
The net tax gap has increased from £5.7 billion in 2017 to 2018 to £10.6 billion in 2021 to 2022. In the same period Corporation Tax liability has grown from £56.6 billion to £69.4 billion. This results in a high of £80.0 billion for theoretical liability in 2021 to 2022.
Figure 5.3: Corporation Tax gap, tax liability and theoretical tax liability, since 2017 to 2018 (£ billion)
| Year | Net tax gap | Liability | Total theoretical tax liability |
|---|---|---|---|
| 2017-18 | 5.7 | 56.6 | 62.3 |
| 2018-19 | 5.9 | 57.5 | 63.4 |
| 2019-20 | 7.7 | 53.4 | 61.1 |
| 2020-21 | 8.8 | 58.1 | 66.9 |
| 2021-22 | 10.6 | 69.4 | 80.0 |
Notes for Figure 5.3
- The full data series can be seen in the online tables.
- Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
- Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.
Figure 5.4 shows the Corporation Tax gap, and its components: gross tax gap, compliance yield and non-payment since 2017 to 2018. The Corporation Tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.
The gross tax gap has increased from £9.3 billion to £14.3 billion since 2017 to 2018. Compliance yield decreased from £3.9 billion in 2017 to 2018 to a low of £3.3 billion in 2019 to 2020 before increasing to around £3.8 billion in 2021 to 2022. Non-payment has stayed consistently between £0.2 billion and £0.3 billion between 2017 to 2018 and 2021 to 2022.
The increase in the gross tax gap, along with broadly stable compliance yield and non-payment has resulted in the net tax gap increasing to a high of £10.6 billion in 2021 to 2022.
Figure 5.4: Components of the Corporation Tax gap, since 2017 to 2018 (£ billion)
| Year | Gross tax gap | Compliance yield | Non-payment | Net tax gap |
|---|---|---|---|---|
| 2017-18 | 9.3 | 3.9 | 0.3 | 5.7 |
| 2018-19 | 9.3 | 3.8 | 0.3 | 5.9 |
| 2019-20 | 10.7 | 3.3 | 0.3 | 7.7 |
| 2020-21 | 11.9 | 3.3 | 0.2 | 8.8 |
| 2021-22 | 14.3 | 3.8 | 0.2 | 10.6 |
Notes for Figure 5.4
- The full data series can be seen in the online tables.
- Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
Revisions
Figure 5.5 shows the revisions to the Corporation Tax gap since the publication of the ‘Measuring tax gaps 2022 edition’.
The Corporation Tax gap percentage for 2018 to 2019 and 2019 and 2020 has been revised upwards, mainly due to increases in the small businesses Corporation Tax gap estimates following the inclusion of 2 more years of random enquiry programme data as compared to the previous ‘Measuring tax gaps 2022’. The latest random enquiry programme data found higher levels of non-compliance than previous programmes.
There have been adjustments in the small businesses model to the methodology for averaging the results of the random enquiry programme data over 3 years.
Figure 5.5: Revisions to Corporation Tax gap since the ‘Measuring tax gaps 2022 edition’
Notes for Figure 5.5
- The full data series can be seen in the online tables.
- MTG stands for ‘Measuring tax gaps’.
Corporation Tax for small businesses
Main findings
The tax gap estimate for small businesses Corporation Tax uses an established bottom-up random enquiry programme methodology.
The 2021 to 2022 uncertainty rating for the small businesses Corporation Tax gap estimate is ‘medium’.
Figure 5.6 shows the small businesses Corporation Tax gap time-series in absolute terms and as a percentage of small businesses theoretical Corporation Tax liability.
The tax gap for small businesses Corporation Tax is 29.3% of the small businesses theoretical Corporation Tax liability, or £8.4 billion in absolute terms, in the 2021 to 2022 tax year.
The small businesses Corporation Tax gap followed a downward trend between 2005 to 2006 and 2011 to 2012, declining from 19.9% to its lowest percentage of 8.8%. Since 2011 to 2012 it has increased, reaching a high of 29.4% in 2019 to 2020. The estimates for 2020 to 2021 and 2021 to 2022 are projected based on the 2019 to 2020 estimate in line with the small businesses Corporation Tax liabilities.
Figure 5.6: Small businesses Corporation Tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2021 to 2022
Notes for Figure 5.6
- The full data series can be seen in the online tables.
Figure 5.7 shows the small businesses Corporation Tax gap, tax liability and the theoretical tax liability, which is the sum of the tax gap and tax liability, since 2017 to 2018.
The small businesses Corporation Tax liability was broadly stable at around £14 billion between 2017 to 2018 and 2019 to 2020, followed by increases to £16.8 billion and £20.2 billion in the last 2 years respectively.
The small businesses net Corporation Tax gap is projected in line with liabilities from 2019 to 2020, so we see a similar growth in the net tax gap estimates in those years.
Figure 5.7: Small businesses Corporation Tax gap, tax liability and theoretical tax liability, since 2017 to 2018 (£ billion)
| Year | Net tax gap | Liability | Total theoretical tax liability |
|---|---|---|---|
| 2017-18 | 3.5 | 13.9 | 17.5 |
| 2018-19 | 3.7 | 14.6 | 18.4 |
| 2019-20 | 6.0 | 14.4 | 20.4 |
| 2020-21 | 6.9 | 16.8 | 23.7 |
| 2021-22 | 8.4 | 20.2 | 28.6 |
Notes for Figure 5.7
- The full data series can be seen in the online tables.
- Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
- Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.
Figure 5.8 shows the small businesses Corporation Tax gap, and its components: gross tax gap, compliance yield and non-payment since 2017 to 2018. The small businesses Corporation Tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.
Compliance yield and non-payment were broadly stable, both between £0.1 to £0.2 billion per year, leading to identical gross and net tax gap estimates.
Figure 5.8: Components of the small businesses Corporation Tax gap, since 2017 to 2018 (£ billion)
| Year | Gross tax gap | Compliance yield | Non-payment | Net tax gap |
|---|---|---|---|---|
| 2017-18 | 3.5 | 0.2 | 0.2 | 3.5 |
| 2018-19 | 3.7 | 0.2 | 0.2 | 3.7 |
| 2019-20 | 6.0 | 0.2 | 0.2 | 6.0 |
| 2020-21 | 6.9 | 0.1 | 0.1 | 6.9 |
| 2021-22 | 8.4 | 0.1 | 0.1 | 8.4 |
Notes for Figure 5.8
- The full data series can be seen in the online tables.
- Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
Additional findings
Figure 5.9 shows that the proportion of small businesses submitting an incorrect Corporation Tax return with under-declared tax liability varied between 16% and 21% in 2015 to 2016 up to 2018 to 2019, and increased to 37% in 2019 to 2020.
Around two thirds of those who submitted incorrect returns did so with an additional Corporation Tax liability of over £1,000, and about one third with an additional Corporation Tax liability of less than £1,000.
Figure 5.9: Proportion of small businesses with incorrect Corporation Tax returns where additional liability established
Notes for Figure 5.9
- The full data series can be seen in the online tables.
- Figures are rounded to the nearest 1%. As a result, components may not appear to sum.
Revisions
Figure 5.10 shows the revisions to the small businesses Corporation Tax gap since the publication of the ‘Measuring tax gaps 2022 edition’.
The small businesses Corporation Tax gap for the 2018 to 2019 and 2019 to 2020 years are revised upwards following the inclusion of 2018 to 2019 and 2019 to 2020 random enquiry programme data, identifying greater non-compliance than previously forecast.
Non-detection multipliers are used as part of the methodology to estimate the tax gap from audit data. The multiplier values are applied to audit results to account for non-compliance which is missed or not fully investigated in an audit. Non-detection multipliers applied to the random enquiry programme data for small businesses have been revised down from 2017 to 2018 because of the increased detected level of non-compliance.
Settlement of long-running cases whose outcomes were previously predicted, has led to revisions in earlier tax years.
Adjustments to the methodology for averaging the results of random enquiry programme data across years leads to small changes in our tax gap estimate across the time-series.
Figure 5.10 Revisions to small businesses Corporation Tax gap since the ‘Measuring tax gaps 2022 edition’
Notes for Figure 5.10
- The full data series can be seen in the online tables.
- MTG stands for ‘Measuring tax gaps’.
Corporation Tax for mid-sized businesses
Main findings
We use an established bottom-up approach for estimating the mid-sized businesses Corporation Tax gap based on a statistical methodology.
The 2021 to 2022 uncertainty rating for the mid-sized businesses Corporation Tax gap estimate is ‘medium’.
Figure 5.11 shows the mid-sized businesses Corporation Tax gap time-series in absolute terms and as a percentage of mid-sized businesses theoretical Corporation Tax liability.
The tax gap for mid-sized businesses Corporation Tax is 8.5% of the mid-sized businesses theoretical Corporation Tax liability, or £1.5 billion in absolute terms, in the 2021 to 2022 tax year.
The tax gap for mid-sized businesses Corporation Tax has declined steadily from 13.3% in 2005 to 2006 to a projected 8.5% in 2021 to 2022.
Figure 5.11: Mid-sized businesses Corporation Tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2021 to 2022
Notes for Figure 5.11
- The full data series can be seen in the online tables.
Figure 5.12 shows the mid-sized businesses Corporation Tax gap, tax liability, and the theoretical liability, which is the sum of the tax gap and tax liability, since 2017 to 2018.
The total theoretical liability has increased from £13.4 billion in 2017 to 2018 to a peak of £18.1 billion in 2021 to 2022. Despite this, the net tax gap was £1.5 billion in both years, increasing from a low of £1.1 billion in 2019 to 2020.
Figure 5.12: Mid-sized businesses Corporation Tax gap, tax liability and theoretical tax liability, since 2017 to 2018 (£ billion)
| Year | Net tax gap | Liability | Total theoretical tax liability |
|---|---|---|---|
| 2017-18 | 1.5 | 11.9 | 13.4 |
| 2018-19 | 1.4 | 12.6 | 14.0 |
| 2019-20 | 1.1 | 11.1 | 12.2 |
| 2020-21 | 1.3 | 13.8 | 15.0 |
| 2021-22 | 1.5 | 16.6 | 18.1 |
Notes for Figure 5.12
- The full data series can be seen in the online tables.
- Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
- Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.
Figure 5.13 shows the mid-sized businesses Corporation Tax gap, and its components: gross tax gap, compliance yield and non-payment since 2017 to 2018. The mid-sized businesses Corporation Tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.
The gross tax gap and compliance yield are both projected in line with mid-sized businesses Corporation Tax liability for the latest 2 years.
The gross tax gap decreased from £1.8 billion in 2017 to 2018 to a projected £1.7 billion in 2021 to 2022. Compliance yield decreased from £0.4 billion in 2017 to 2018 to a projected £0.2 billion in 2021 to 2022.
Non-payment has decreased from £0.1 billion in 2017 to 2018 to less than £0.1 billion in both 2020 to 2021 and 2021 to 2022.
Figure 5.13: Components of the mid-sized businesses Corporation Tax gap, since 2017 to 2018 (£ billion)
| Year | Gross tax gap | Compliance yield | Non-payment | Net tax gap |
|---|---|---|---|---|
| 2017-18 | 1.8 | 0.4 | 0.1 | 1.5 |
| 2018-19 | 1.6 | 0.3 | 0.1 | 1.4 |
| 2019-20 | 1.1 | 0.1 | 0.1 | 1.1 |
| 2020-21 | 1.4 | 0.2 | <0.1 | 1.3 |
| 2021-22 | 1.7 | 0.2 | <0.1 | 1.5 |
Notes for Figure 5.13
- The full data series can be seen in the online tables.
- Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
Revisions
Figure 5.14 shows the revisions to the mid-sized businesses Corporation Tax gap percentage since the publication of the ‘Measuring tax gaps 2022 edition’.
As compliance cases can take many years to close, the compliance yield of open cases is forecasted. Estimates are likely to be revised between publications due to differences between forecast and actual compliance yield. This has caused minor revisions from 2014 to 2015.
The tax year 2019 to 2020 was a projection in ‘Measuring tax gaps 2022 edition’. We have updated our estimate with results from cases related to tax liability in 2019 to 2020. This has led to a downwards revision in the tax gap estimate for 2019 to 2020, and to lower projections for the year 2020 to 2021.
Figure 5.14: Revisions to mid-sized businesses Corporation Tax gap since ‘Measuring tax gaps 2022 edition’
Notes for Figure 5.14
- The full data series can be seen in the online tables.
- MTG stands for ‘Measuring tax gaps’.
Corporation Tax for large businesses
Main findings
The large businesses Corporation Tax gap is estimated using an established statistical methodology.
The 2021 to 2022 uncertainty rating for the large businesses Corporation Tax gap estimate is ‘high’.
Figure 5.15 shows the large businesses Corporation Tax gap time-series in absolute terms and as a percentage of large businesses Corporation Tax liability.
The tax gap for large businesses Corporation Tax is 2.2% of the large businesses theoretical Corporation Tax liability, or £0.7 billion in absolute terms, in the 2021 to 2022 tax year.
The tax gap percentage for large businesses has declined steadily from 8.7% in 2005 to 2006 to a projected 2.2% in 2021 to 2022. The tax gap percentage is estimated to be 2.2% between 2017 to 2018 and 2021 to 2022, as it is projected in line with large businesses Corporation Tax liability for the latest 5 years.
Figure 5.15: Large businesses Corporation Tax gap by value and as a percentage of theoretical tax liabilities, 2005 to 2006 up to 2021 to 2022
Notes for Figure 5.15
- The full data series can be seen in the online tables.
Figure 5.16 shows the large businesses Corporation Tax gap, tax liability, and the theoretical liability, which is the sum of the tax gap and tax liability, since 2017 to 2018.
Large businesses Corporation Tax liability has increased from £30.8 billion in 2017 to 2018 to £32.5 billion in 2021 to 2022. The net tax gap is projected to remain stable between £0.6 billion and £0.7 billion in all 5 years.
Figure 5.16: Large businesses Corporation Tax gap, tax liability and theoretical tax liability, since 2017 to 2018 (£ billion)
| Year | Net tax gap | Liability | Total theoretical tax liability |
|---|---|---|---|
| 2017-18 | 0.7 | 30.8 | 31.5 |
| 2018-19 | 0.7 | 30.4 | 31.1 |
| 2019-20 | 0.6 | 28.0 | 28.6 |
| 2020-21 | 0.6 | 27.5 | 28.1 |
| 2021-22 | 0.7 | 32.5 | 33.3 |
Notes for Figure 5.16
- The full data series can be seen in the online tables.
- Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
- Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.
Figure 5.17 shows the large businesses Corporation Tax gap, and its components: gross tax gap, compliance yield and non-payment since 2017 to 2018. The large businesses Corporation Tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.
The gross tax gap and compliance yield are both projected in line with Corporation Tax liabilities from 2016 to 2017.
The gross tax gap is projected to increase from £4.0 billion in 2017 to 2018 to £4.2 billion in 2021 to 2022. Compliance yield is projected to increase from £3.3 billion in 2017 to 2018 to £3.5 billion in 2021 to 2022. Non-payment has been less than £0.1 billion in each of the past 5 years.
The net tax gap is projected to remain between £0.6 billion and £0.7 billion between 2017 to 2018 and 2021 to 2022.
Figure 5.17: Components of the large businesses Corporation Tax gap, since 2017 to 2018 (£ billion)
| Year | Gross tax gap | Compliance yield | Non-payment | Net tax gap |
|---|---|---|---|---|
| 2017-18 | 4.0 | 3.3 | <0.1 | 0.7 |
| 2018-19 | 3.9 | 3.3 | <0.1 | 0.7 |
| 2019-20 | 3.6 | 3.0 | <0.1 | 0.6 |
| 2020-21 | 3.6 | 3.0 | <0.1 | 0.6 |
| 2021-22 | 4.2 | 3.5 | <0.1 | 0.7 |
Notes for Figure 5.17
- The full data series can be seen in the online tables.
- Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
Revisions
Figure 5.18 shows the revisions to the large businesses Corporation Tax gap percentage since the publication of the ‘Measuring tax gaps 2022 edition’.
As compliance cases can take many years to close, the compliance yield of open cases is forecasted. Estimates are likely to be revised between publications due to differences between forecast and actual compliance yield.
There have been minimal revisions to the large businesses Corporation Tax gap percentage with a slight change in 2014 to 2015 reflecting the outcomes of the most complex enquiries. Compliance yield and the gross tax gap are projected for 5 years, an additional year compared to the ‘Measuring tax gaps 2022 edition’.
Figure 5.18: Revisions to large businesses Corporation Tax gap since the ‘Measuring tax gaps 2022 edition’
Notes for Figure 5.18
- The full data series can be seen in the online tables.
- MTG stands for ‘Measuring tax gaps’.