Official Statistics

Preliminary estimate of the VAT gap (tax year 2022 to 2023)

Updated 6 March 2024

An Official Statistics release. Published 22 November 2023.

1. What is the VAT Gap?

The VAT gap is measured by comparing the net VAT total theoretical liability (VTTL) with actual receipts (this is comparing the amount of VAT HMRC expects to receive and the VAT HMRC actually receives). The VAT gap methodology uses a ‘top-down’ approach.

2. Preliminary estimate of the VAT gap for tax year 2022 to 2023

The table below shows the headline figures used to produce the preliminary VAT gap estimate for tax year 2022 to 2023

Tax year	Net VAT total theoretical liability	HMRC net VAT receipts	Net VAT receipts related to net VAT total theoretical liability in 2022 to 2023	VAT gap (point estimate)	VAT gap (per cent)
2022 to 2023	£166.9 billion	£159.7 billion	£158.1 billion	£8.8 billion	5.3

The amounts calculated are rounded to the nearest £0.1 billion and the VAT gap as a percentage has been rounded to the nearest 0.1 per cent. Net VTTL and net VAT receipts are expressed net of payments and repayments. A portion of the VTTL estimate is projected rather than actual expenditure.

The first estimate of the VAT gap for 2022 to 2023 at 5.3% (£8.8 billion) shows a slight reduction in percentage terms compared with the estimate of the VAT gap for 2021 to 2022 of 5.4% (£7.6 billion) published in ‘Measuring tax gaps 2023 edition’. It also shows a slight increase on the 2020 to 2021 estimate of 5.0% (£6.3 billion), in the same publication.

In 2022 the government announced the Energy Bills Support scheme, implemented from October 2022 to March 2023. This measure provided households with a £400 discount on their energy bills.

As the policy provided customers a discount on their energy bills, it brought down their total expenditure on electricity for 2022 to 2023. However, the policy did not reduce the energy suppliers’ VAT liabilities. Energy suppliers were still liable to pay VAT on the total energy bill, including the £400 that had been discounted.

The calculation of the VAT gap includes an adjustment to the 2022 to 2023 net VTTL figure. This adjustment ensures that, despite the reduction in total expenditure on electricity due to the Energy Bills Support Scheme, the 2022 to 2023 net VTTL figure includes the VAT still liable on the £400 discounted for each household.

The 2022 to 2023 net receipts figure in the VAT gap model includes an adjustment to remove the impact of the payments in this year that related to deferred VAT between March 2020 and June 2020 under the ‘VAT payments deferral scheme’ and ‘VAT Deferral New Payment Scheme’ - key fiscal support measures in the government’s response to Covid-19.

There is a further adjustment to the 2022 to 2023 net receipts figure which accounts for the Postponed VAT Accounting Policy. This policy has a timing impact which affects when VAT payments are received.

Taken together, these two adjustments to VAT receipts ensure when estimating the VAT gap for 2022 to 2023 that only the net VAT receipts which related to the net VAT total theoretical liability (net VTTL) in 2022 to 2023 are properly taken into account (this figure is shown in a separate column in table above, ‘Net VAT receipts related to net VAT total theoretical liability in 2022 to 2023’).

3. Details of HMRC’s VAT gap publications

HMRC publishes three estimates of the VAT gap for the latest tax year (2022 to 2023): the first in the autumn, the second at spring, and the third as part of HMRC’s ‘Measuring tax gaps’ publication in the summer.

The preliminary estimate of the VAT gap for 2022 to 2023 has now been published at Autumn Statement 2023. It is based on a full year of household expenditure data in line with ONS Consumer Trends data up to and including 2022 quarter 2 - which accounts for around 70% of the VTTL. The remaining 30% of the VTTL, comprising government, charities, businesses making non-business or supplies exempt from VAT, and housing, was based on ONS National Accounts Blue Book 2022 non-household data and a forecast produced by the Office for Budget Responsibility (OBR).

The second estimate of the VAT gap for 2022 to 2023 will be published at Spring Budget 2023 and it includes the latest ONS Consumer Trends data for 2023 quarter 3. It also includes the latest ONS National Accounts Blue Book 2023 non-household expenditure data but continues to forecast around 30% of the 2022 to 2023 VTTL in line with the latest OBR forecasting assumptions.

The third VAT gap estimate for 2022 to 2023 will be published along with an updated historical series as part of the ‘Measuring tax gaps 2024 edition’ publication in summer 2024. It is expected to include further updates, such as ONS Consumer Trends data.

Due to timing the ‘Measuring tax gaps 2024 edition’ publication will not include the Blue Book 2024 data, therefore 30% of the 2022 to 2023 estimate will remain forecasted until the publication of ‘Measuring tax gaps 2025 edition’.

For details on assumptions provided by the OBR, go to OBR publications. For details on Blue Book data go to ‘UK National Accounts, The Blue Book time series’. For details on the Consumer Trends data go to ‘Consumer trends time series’

For details on the Measuring Tax Gaps publication, go to Measuring Tax Gaps.

4. Revisions policy

HMRC’s policy is to only publish a revised historical VAT gap series once a year, within the Measuring tax gaps publication, incorporating both new and revised data and methodological improvements together.

5. Methodology

Further information on the methodology used to estimate the VAT gap can be found in ‘Measuring tax gaps 2022 edition - Methodological annex’, Chapter D

6. User engagement

HMRC is committed to providing impartial quality statistics that meet our users’ needs. We encourage our users to engage with us so that we can improve our Official Statistics and identify gaps in the statistics that we produce.

If you have any comments or questions about these statistics then please contact the responsible statistician directly. Go to Statistics at HMRC for further information.

7. Publication info

Theme: the economy

Released: 22 November 2023

Next release: Spring 2024

© Crown copyright 2023

8. Contact

For statistical enquiries contact:

revenuemonitoring@hmrc.gov.uk

Knowledge, Analysis & Intelligence
HM Revenue and Customs
100 Parliament Street
London
SW1A 2BQ

For media enquiries, contact the HMRC press office (Business and Corporate desk): 03000 550 493