The ‘tax gap’ for the 2020-2021 financial year is £32 billion, according to new figures. The findings have been revealed in the annual Measuring Tax Gaps report, which estimates the difference between the total amount of tax expected to be paid to HMRC and the total amount actually paid.

The estimated tax gap for the 2020-2021 tax year is 5.1%. And while there’s been no change in the percentage tax gap compared to the previous year, the monetary value has fallen by £2 billion from £34 billion in the 2019-2020 tax year.

Commenting on the report, Jonathan Athow, HMRC’s Director General for Customer Strategy and Tax Design, said: “The vast majority of taxpayers and businesses paid the correct amount of tax owed. We want to help everyone to get their tax right as the revenue we raise helps fund our vital public services.”

The tax gap and Covid-19

HMRC said the total tax due to be paid fell from £672 billion in 2019-2020 to £635 billion in 2020-2021 because of the economic impact of Covid-19.

But the tax authority has admitted there’s some uncertainty for the tax gap estimates for the first year of the coronavirus pandemic. It said the estimate for 2020-2021 is the best assessment based on the evidence available at the time. Estimates could be revised in the future.

What is the tax gap?

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and the amount that is actually paid.

Each year, the tax body estimates the tax gap for direct and indirect taxes based on the latest available information. It may revise figures for previous years as more data becomes available to allow it to show the long-term trend.

When did HMRC start publishing these estimates?

HMRC has published tax gap estimates since the 2005-2006 tax year.

Since then, there’s been a reduction in the overall gap from 7.5% in 2005-2006 to 5.1% in 2020-2021. HMRC said this decrease was because of the Government’s action to help taxpayers get their tax right first time, while bearing down on the small minority who were deliberately non-compliant.

Why do the tax gap figures matter?

By publishing the data, HMRC hopes it will help build trust in its ability to support taxpayers in meeting their obligations and paying the tax they owe. It also wants to create greater transparency in the tax system and for the findings to inform the tax body’s future work and priorities.

What else does the latest Measuring Tax Gaps report reveal?

  • At £15.6 billion, small businesses are responsible for almost half (48%) of the tax gap; while criminals account for 16% (£5.2 billion).
  • Losses from income tax, National Insurance contributions, and capital gains tax are £12.7 billion – which represents the biggest share (39.5%) of the total tax gap when viewed by type of tax.
  • VAT losses make up the second biggest share at £9 billion (28%).
  • The tax gap for corporation tax is £5.6 billion; while losses from excise duties are £3.5 billion.
  • Individuals are responsible for £2.5 billion (8%) of the losses; while the wealthy account for £1.5 billion (5%).

Need help understanding your taxes?

At Churchill Taxation, our team of tax experts can help you make sense of your tax payments. Based in the West Midlands, we support people and businesses across the UK.

Call us on 07813 434195 or email: stephanie.churchill@churchilltaxation.co.uk
Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation