Tax gap low at 5.3%

The HMRC annual Measuring Tax Gaps publication estimates the difference between the total amount of tax expected to be paid and the total amount of tax actually paid during the financial year. The majority of taxpayers pay the tax that is owed.

This year’s estimated tax gap at 5.3% represents £35 billion compared to 5% in the 2018/19 tax year, which represents £33 billion in monetary terms.

Nearly 95% of the tax due was paid in 2019/2020 and HMRC has seen an increase in total revenue paid year on year. Taxpayers paid more than £633.4 billion in tax during 2019/2020. This highlights how the vast majority of taxpayers are paying the correct amount of tax, which is essential to fund vital public services.

The bulletin shows:

• a long-term reduction in the overall tax gap, falling from 7.5% in 2005/2006 to 5.3% in 2019/2020, the tax gap remaining low and fairly stable for the fourth year
• the total tax gap for Value Added Tax (VAT) is £12.3 billion. The statistics show there has been a long-term reduction for the VAT gap from 14.0% in 2005/2006 to 8.4% in 2019/2020
• 43% (£15.1 billion) of the tax gap is attributed to small businesses
• the tax gap for wealthy individuals fell from £1.6 billion in 2018/2019 to £1.5 billion in 2019/2020
• ‘failure to take reasonable care’ is the cause of the largest proportion of the tax gap at 19% (£6.7 billion) – avoidance accounts for the smallest proportion of the tax gap at 4% (£1.5 billion)
• the Inheritance Tax gap has decreased from an estimated £425 million (7.4%) in 2018/19 to £350 million (6.3%) in 2019/20

Any impact of COVID-19 lockdown and economic downturn is likely to be first seen in the tax year 2020/2021 to be published in 2022

HMRC is one of only two authorities in the world that measures and publishes the tax gap, covering both direct and indirect taxes.

They estimates the tax gap for direct and indirect taxes based on the latest available information.

PAYadvice.UK 16/9/2021