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Tax gap remains at 5.1%

The tax gap for the 2020-21 tax year has been published and remains at 5.1%. This is the second lowest recorded percentage and remains unchanged from the previous 2019-20 tax year.

The tax gap is basically the difference between the amount of tax that should have been paid to HMRC and the amount of tax collected by the Exchequer. The gap includes tax that has been avoided in the UK’s black economy, by criminal activities, through tax avoidance and evasion. However, it also includes simple errors made by taxpayers in calculating the tax they owe as well as outstanding tax due from businesses that have become insolvent.

In monetary terms, the tax gap is equivalent to lost tax of £32 billion. This is £2 billion less than the tax gap in 2019-20. This is due to the fact that total amount of tax due fell from £672 billion in 2019-20 to £635 billion in 2020-21 because of the economic impact of COVID-19.

The key findings from HMRC’s Measuring the Tax Gap publication include:

  • The UK tax gap in 2020-21 is estimated to be 5.1% of total theoretical tax liabilities (£32 billion), which means HMRC protected 94.9% of all tax due.
  • The tax gap reduced from 7.5% in the tax year 2005-6 to 5.1% in 2020-21.
  • The tax gap for Income Tax, National Insurance contributions and Capital Gains Tax (IT, NICs and CGT) is 3.5% in 2020-21 at £12.7 billion – this is the biggest share of the total tax gap when viewed by type of tax (39.5%).
  • The tax gap for VAT is 7% in 2020-21 and is the second biggest share of the total tax gap at £9 billion (28.0%).
  • The tax gap for Corporation Tax reduced from 11.5% in 2005-6 to 9.2% in 2020-21 reaching a low of 6.5% in 2011 to 2012 and remaining stable since 2014-15.

HMRC’s press release on the tax gap states that ‘the reduction is a result of the government’s action to help taxpayers get their tax right first time, whilst bearing down on the small minority who are deliberately non-compliant’. The tax gap was estimated to be as high as 7.5% in 2005-6.

Source: HM Revenue & Customs Mon, 11 Jul 2022 00:00:00 +0100