Official Statistics

7. Tax gaps: Illustrative tax gap by behaviour

Updated 22 June 2023

Tax gap by behaviour

The tax gap is composed of a range of customer behaviours:

• avoidance

• criminal attacks

• error

• evasion

• failure to take reasonable care

• hidden economy

• legal interpretation

• non-payment

A definition of each of these behaviours can be found in Chapter L of the ‘Methodological annex’.

The estimates provide broad indicators of the customer behaviours contributing to the tax gap. For ‘Measuring tax gaps 2023 edition’ we have updated some assumptions used to estimate the behavioural breakdown of the tax gap. These methodological improvements based on the latest data and operational insight do not extend back to 2005 to 2006.

Main findings

Figure 7.1 shows an illustrative tax gap breakdown into behaviours between 2019 to 2020 and 2021 to 2022.

In 2021 to 2022, failure to take reasonable care accounts for the largest proportion of the tax gap at 30%, increasing its share of the tax gap from 24% in 2019 to 2020.

Error accounts for the second largest share at 15% of the overall tax gap in 2021 to 2022, while evasion accounts for the third largest share at 13%.

The proportion of the tax gap due to criminal attacks reduced from 15% in 2019 to 2020 and 2020 to 2021 to 11% in 2021 to 2022.

Similarly, the proportion of the tax gap due to non-payment reduced by 3 percentage points from 12% in 2020 to 2021 to 9% in 2021 to 2022. The share of the tax gap by legal interpretation remains broadly flat at 12%.

Avoidance remains the smallest proportion of the tax gap at 4%, and hidden economy at 6% of the overall tax gap in 2021 to 2022.

Figure 7.1 Tax gap by customer behaviour – share of tax gap, 2019 to 2020 to 2021 to 2022

Notes for Figure 7.1

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

Avoidance

Avoidance involves bending the rules of the tax system to try and 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.

Main findings

The avoidance tax gap is estimated to be £1.4 billion in the 2021 to 2022 tax year. About £0.5 billion of this relates to marketed avoidance schemes sold primarily to individuals and made up of Income Tax, National Insurance contributions and Capital Gains Tax. The avoidance tax gap estimates reflect the laws that were in place at the time and do not include any subsequent changes to the tax law to prevent further use of avoidance.

Figure 7.2 shows how the avoidance tax gap is split by type of tax in 2021 to 2022. Around half of the avoidance tax gap (£0.7 billion) is attributed to Corporation Tax, with £0.5 billion attributed to Income Tax, National Insurance contributions and Capital Gains Tax, £0.1 billion to VAT and £0.1 billion to other taxes.

Table 7.2 in the online tables shows the breakdown of the avoidance tax gap by type of tax from tax year 2017 to 2018, to 2021 to 2022.

Figure 7.2: Avoidance tax gap by type of tax, 2017 to 2018 to 2021 to 2022 (£ billion)

Notes for Figure 7.2

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’.
3. ‘Other taxes’ includes ‘other taxes, levies and duties’ (Aggregates Levy, Air Passenger Duty, Customs Duty, Climate Change Levy, Digital Services Tax, Insurance Premium Tax, Landfill Tax, Soft Drinks Industry Levy) and direct taxes (stamp taxes, Inheritance Tax).