HomeTaxUK ‘tax gap’ increases to £35bn

UK ‘tax gap’ increases to £35bn

The ‘tax gap’ for the 2019/20 tax year was 5.3%, a small percentage increase over the previous tax year, according to statistics published this month by HMRC.

This year’s estimated tax gap at 5.3% represents £35 billion, compared with 5% in the 2018/19 tax year (£33 billion).

The tax gap is the estimated difference between the total amount of tax expected to be paid and the total amount of tax actually paid during the financial year. The figures are released in HMRC’s annual ‘Measuring Tax Gaps’ publication.

Nearly 95% of the tax due was paid in 2019/20 and HMRC has seen an increase in total revenue paid year on year. Taxpayers paid more than £633.4 billion in tax during 2019-20, an increase of more than £100 billion since 2015/16, when the total revenue paid was £532.5 billion. 

Jim Harra, HMRC’s Chief Executive and First Permanent Secretary said: “It is encouraging to see such a large proportion of businesses and individuals meeting their tax obligations. We want to help everyone get their tax right, which will help fund our vital public services like the NHS and emergency services.”

Findings from the Measuring Tax Gaps bulletin show:

  • There has been a long-term reduction in the overall tax gap, falling from 7.5% in 2005/06 to 5.3% in 2019/20, with the tax gap remaining low and fairly stable for the fourth year.
  • The total tax gap for VAT is £12.3 billion. The statistics show there has been a long-term reduction for the VAT gap from 14.0% in 2005/06 to 8.4% in 2019/20.
  • 43% (£15.1 billion) of the tax gap is attributed to small businesses, whereas wealthy customers and individuals account for the smallest share of the tax gap at 4% (£1.5 billion) and 7% (£2.6 billion) respectively.
  • The tax gap for wealthy individuals fell from £1.6 billion in 2018/19 to £1.5 billion in 2019/20.
  • ‘Failure to take reasonable care’ accounts for the largest proportion of the tax gap at 19% (£6.7 billion), whereas 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.

HMRC said any impact of the pandemic lockdowns on the tax gap is likely to be first seen in the tax year 2020/21, which will be published in next year’s Measuring Tax Gaps.

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