The latest tax gap data for 2020/21 has been published in HMRC’s annual ‘Measuring Tax Gaps’ report. The tax gap measures the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. The tax gap is 5.1 percent in 2020/21 or £32 billion.
According to HMRC, the 2020/21 tax gap estimates are affected by COVID-19 and therefore subject to more uncertainty than usual so there is the possibility of future revisions.
Key findings are as follows:-
- The tax gap for Income Tax, National Insurance contributions and Capital Gains Tax is 3.5 percent (£12.7 billion) in 2020/21, which is the biggest share of the total tax gap by type of tax; and
- The VAT gap, which is the second biggest share of the total tax gap by tax type, decreased from 8.5 percent (£12.5 billion) in 2019/20 to 7 percent (£9 billion) in 2020/21.
The tax gap publication excludes estimates of error and fraud in the COVID-19 support schemes. Updated estimates of COVID-19 error, and fraud will be published in HMRC’s annual report and accounts for 2021/22. The tax gap report also breaks down the tax gap by taxpayer group however, as some judgement and assumptions are involved, the report explains that these estimates are subject to uncertainty, which cannot be accurately quantified.
According to the 2020/21 report, small businesses accounted for 48 percent (£15.6 billion) of the tax gap, whereas wealthy taxpayers and individuals accounted for the smallest share of the tax gap at 5 percent (£1.5 billion) and 8 percent (£2.5 billion) respectively.