Official Statistics

Tax relief statistics (December 2021)

Updated 3 August 2022

1. About this publication

This publication provides Official Statistics on estimated costs of tax reliefs where these are available and lists the tax reliefs where estimates are not available. These estimates provide costs from outturn years 2016 to 2017 up to 2020 to 2021 and forecasts for the current tax year 2021 to 2022.

Additionally, the publication collects published information available to HMRC on these tax reliefs, including links to statistical and non-statistical information on the impact of tax reliefs published elsewhere. This publication has been extended and developed since earlier versions: see below.

1.1 What’s new in this publication

The following additions and updates have been made to the bulletin:

• we have published 17 cost estimates for reliefs where cost information was previously unavailable
  • we have produced an additional two cost estimates for reliefs which will not be published, due to statistical disclosure rules
• we have introduced a new section of ‘Headline statistics’

• we have added extra detail on the most significant non-structural tax reliefs, including (where available):

  • details on the original forecasted cost of the most significant reliefs when they were introduced
  • links to other government reports that might be helpful in understanding the reliefs
  • links to other government documents that have analysis of the beneficiaries and distributional impact of the reliefs
• we have added information about the data and methodology used to cost each relief
• annex A sets out HMRC’s approach to evaluating reliefs
• this publication is now published in HTML format to align with HMRC’s accessibility guidelines

2. Changes for 2021 and Future Development

2.1 Increasing the number of costed reliefs

HMRC continuously aims to improve its own, and public understanding of the impacts of tax reliefs. HMRC has prioritised additional analytical resource to undertake a multi-year project to provide more public information on the costs for reliefs where none are currently published, prioritising non-structural reliefs. This project started in 2019 and will run in 2 stages over several years.

The first stage involves a comprehensive review of currently available data to provide indicative estimates for tax reliefs. As part of this stage of the project, 47 new cost estimates were published in May 2020 (one of these has since been removed because it is a structural relief). Following this a further 26 were published in October 2020, 29 in May 2021, and a further 17 in this publication. This means that in total, we have published new cost estimates for 118 non-structural reliefs.

As part of this first stage we have also established that the cost of 25 reliefs cannot be published because of statistical rules (including disclosure). Furthermore, cost estimates for 14 reliefs cannot be produced as we do not have sufficient data to estimate the cost. There are now around 80 uncosted non-structural reliefs from the original publication. We will continue to expand coverage in 2022.

The second stage identifies those reliefs where HMRC would need to collect or purchase additional data to estimate the costs of the reliefs. Fourteen of these reliefs have been identified and listed in the associated tables with this bulletin. HMRC intends to make significant progress on the coverage of costed non-structural reliefs over the project. However, there are trade-offs about administrative burdens and collection costs, so there may remain some uncosted reliefs due to data limitations.

2.2 Developing and expanding commentary on the cost and impact of reliefs

Following recommendations from the Public Accounts Committee (PAC) in July 2020, HMRC has committed to ‘improving the available information about the groups and sectors benefitting from significant reliefs’, and to ‘identify and explain significant cost variances within reliefs’. HMRC has already made progress in last year’s publication:

• on the former, by including links to existing statistics published elsewhere about the groups and sectors benefitting from the largest reliefs
• on the latter, by expanding commentary on the changes over time in the costs of high priority non-structural tax reliefs
  • we also presented a comparison of the costs of tax reliefs against their original forecast cost at introduction, prioritising non-structural tax reliefs which have been announced since the introduction of the Office for Budget Responsibility (OBR) in 2010

HMRC has continued to make progress in this area in this statistics publication this year by including:

• links to and summaries of existing published analysis that may shed light on the distributional impacts and effectiveness of the most significant reliefs
• summary statistics highlighting key trends and findings from across the relief costings

2.3 COVID-19 impacts on reliefs

This publication lists the seven non-structural tax reliefs currently in place which were introduced as part of the government’s response to the COVID-19 pandemic. HMRC does not collect data on all these reliefs, and where it does, complete data for 2020 to 2021 is not yet available. We will review the outturn data when it is available and aim to provide outturn cost estimates in future releases, and where we cannot estimate the cost we will explain why.

In recent years this publication has included estimates of the outturn cost of reliefs for the past five financial years (for this release, 2016 to 2017 to 2020 to 2021), and a forecast year: a forecast of the total cost of each relief for the year in which the release is published (for this release, 2021 to 2022).

In 2020 we did not publish cost estimates for 2020 to 2021, the forecast year in last year’s release. This is because the impact of the pandemic meant that we did not have data and official economic determinants which would allow us to produce credible and useful forecasts. This year, for most reliefs, we have published outturn cost estimates for 2020 to 2021 for the first time, as well as forecasts of costs for 2021 to 2022.

On average, there is a higher degree of uncertainty around cost estimates for these years compared to earlier years, and in some cases, the methodology used to estimate costs for these years has had to be adjusted to ensure greater accuracy. There is a small number of reliefs for which we do not have cost estimates for 2020 to 2021 or 2021 to 2022, as we cannot estimate the costs for these years with enough certainty.

The pandemic and the measures put in place in response have impacted the cost of reliefs. In many cases, changes in the estimated costs of reliefs between 2019 to 2020 and 2020 to 2021 reflect the decline in economic activity during 2020 to 2021. This can be seen in cost estimates for reliefs which apply to sectors particularly impacted by the pandemic such as air travel (Air Passenger Duty reliefs) and other public transport (the VAT relief for domestic passenger transport).

Reliefs related to investment, such as the Research and Development Expenditure Credits, are also expected to fall in cost because of the pandemic. On the other hand, the costs of some reliefs rose in 2020 to 2021. For example, the cost of VAT zero-rate on food is estimated to have risen between 2019 to 2020 to 2020 to 2021, during the closure of much of the hospitality sector.

There are some instances where tax measures introduced in the last year affected the cost of reliefs. For example, the cost of the Annual Investment Allowance is projected to fall in 2021 to 2022, as we expect much of the expenditure that would usually be used to claim the 100% Annual Investment Allowance would instead be used to claim the 130% Super-Deduction, introduced in April 2021.

3. Interpretation

These tables are classified as Official Statistics, falling outside the scope of National Statistics owing to our forecasting the estimates, and insufficient data.

3.1 How to interpret these estimates

It is important to remember the following when interpreting these statistics:

• these figures are estimates of the amount of each relief which is claimed and subsequently granted each year
• these figures should be regarded as broad estimates as the loss of revenue from a tax relief cannot be observed directly - estimates are often based on simplified assumptions
• these estimates do not represent the revenue raised by abolishing the relief and estimates should not be summed up, this is because:
  • estimates do not allow for behavioural changes which could result from changes to the reliefs
  • estimates do not account for interactions between reliefs
  • the use of a given relief can be highly dependent on the use of another
  • there are wider economic impacts of reliefs which would have a knock-on effect on tax receipts if reliefs were removed, that are not included here - for example: abolishing capital allowances would increase the cost of capital and affect the economy and wider tax receipts outside of the direct effect of removing relief
• the estimates are in nominal £ million
• comparing estimates publication to publication could be misleading as changes to policy, modelling methodologies, data, and assumptions mean that estimates could be calculated on a different basis year to year
• the quality of data available for each cost estimate varies, therefore some estimates are more uncertain than others - this is explained in more detail in the ‘Methodology and Data Quality’ section
• some tax reliefs are used by a small number of taxpayers, for these reliefs, publishing a cost estimate could possibly allow individual taxpayers to be identified - in these cases we do not report the cost if disclosive
• unless stated otherwise, all costs are on an accruals basis - they represent the effects on the tax liabilities for each year, not receipts in each year - some are on a national accounts basis which represents time-shifted cash

For Inheritance Tax reliefs, estimates are based on the details of those estates which notify HMRC of wealth transfers through Inheritance Tax returns. Inheritance tax returns often do not need to be completed for estates where some types of wealth have not been transferred, and as such a grant of probate (confirmation in Scotland) was not required.

Please refer to the supplementary notes on the tables for further explanations for specific reliefs.

3.2 Structural and non-structural tax reliefs categorisations

Many tax reliefs are integral parts of the tax structure. We have classified these as ‘structural reliefs’. These reliefs have various purposes including: to define the scope of the tax, calculate income or profits correctly.

In contrast, the purpose of other reliefs is to help or encourage particular types of individuals, activities or products in order to achieve economic or social objectives. In this publication we refer to these as ‘non-structural’ tax reliefs.

The split between ‘structural tax reliefs’ and ‘non-structural tax reliefs’ is not always straightforward, and these categorisations remain under continuous review. Many reliefs have both structural and non-structural purposes. For example, capital allowances can provide relief for commercial depreciation as well as an element of accelerated relief. While the former can be regarded as a structural part of the tax system, the latter element is non-structural as it provides additional benefit to business.

Where reliefs combine both structural and non-structural elements for the purpose of this publication these reliefs have been allocated to the category for which they have been deemed most dominant.

This publication provides 5 tables:

• table 1: Estimated cost of non-structural tax reliefs
• table 2: List of non-structural tax reliefs where cost estimates are unavailable
• table 3: Estimated cost of structural tax reliefs
• table 4: List of structural tax reliefs where cost estimates are unavailable
• table 5: Non-structural reliefs – distributional analysis

Within each table the reliefs are also categorised by the taxes to which they apply, for example, Income Tax and Corporation Tax. Reliefs which apply to more than one tax are in a tab called ‘Multiple tax types’. This publication has been updated to better align with HMRC’s central management of tax reliefs, meaning it focuses on the non-structural tax reliefs.

4. Methodology and Data Quality

For many reliefs, HMRC does not require information on the use of the relief to be submitted on tax returns as this is not needed for establishing the liability to tax. This may be because the relief is an exemption rather than a deduction from income or profits. In such cases, HMRC uses suitable external information sources, if available, to estimate usage of the relief and thereby its cost.

There are two types of cost estimate presented in this release. HMRC tax relief statistics have historically included multiple-year cost estimates for a subset of reliefs. For reliefs where no estimates were previously published, we have prioritised estimating a single-year cost for non-structural reliefs.

Where the cost is estimated at zero or less than £3 million they are shown as ‘negligible’. The cost estimates have been rounded according to their size, as follows:

• under £100 million – rounded to the nearest £5 million
• over £100 million but under £1 billion – rounded to the nearest £10 million
• over £1 billion – rounded to the nearest £100 million

In the structural and non-structural cost estimates tables, a hyphen in a cell indicates that the relief was not in operation in that particular year, or that we were unable to estimate the costs in 2020 to 2021 or 2021 to 2022 due to the uncertainty caused by COVID-19. Where there is a hyphen in the number of claimants section, we are not able to estimate the number of claimants.

Tax relief cost estimates may change in future years of the publication, due to revisions to data, methodology or OBR economic determinants.

4.1 Multiple-year cost estimates

The tables provide estimates of the revenue costs for the six years 2016 to 2017 to 2021 to 2022. These estimates are based on information available at 10 December 2021. For many reliefs, estimates of the cost rely on information on tax returns, statistics from other government departments and other data that may not be available for the most recent years at the time the estimates are produced.

For these reliefs, the figures for 2021 to 2022 (and in some cases earlier years) are projections based on previous years’ outturn data. The forecast or projection estimates are indicated with an asterisk.

For the first time this year, we have included information on the type of data and methodology used for estimating the cost of each relief. The ‘Data and methodology’ column sorts reliefs into the categories below:

• there is no administrative data on the relief, it is estimated entirely using alternative data
• administrative data on the use of the relief, with significant assumptions applied
• administrative data on the use of the relief, with minimal assumptions applied

In subsequent annual updates, forecasted or projected figures will normally be replaced with estimates based on actual data as those estimates become available. Where estimates based on actual data change materially from one year to the next, commentary is provided explaining the main reasons for the changes.

The tax rates and allowances used in the estimates include the impact of decisions in the 2021 Autumn Budget. The forecasts reflect the OBR’s October 2021 Economic and Fiscal Outlook.

4.2 Single-year cost estimates

The reliefs in this publication for which we have provided a single-year rather than multiple-year cost estimates were previously uncosted, which in many cases was due to data limitations. This means that most of the reliefs which are newly costed since 2019 have no readily available administrative data. Where possible, we have used suitable publicly available external data, or data from other government departments.

Where external data has been used, it is not always targeted or comprehensive. In many cases, relevant data is not directly available and so we have used proxy data and/or made assumptions. As a result, we have provided an uncertainty rating with each cost estimate. Our assessment of the uncertainty level is broad-based and considers the quality of the data used and the assumptions made. Our approach is summarised below:

Uncertainty	Data and modelling approach
Low	High-quality, targeted and comprehensive data from administrative or external sources. Assumptions have strong underlying rationale and can be verified using good quality independent data.
Medium	Basic data, incomplete in a few instances, which may be from external sources. Some assumptions are used and can be verified only to a limited extent.
High	Very little, incomplete or poor-quality data. Largely assumption-based and more challenging to verify.

This release provides single-year cost estimates for the latest year for which data is available, which in most cases is the 2018 to 2019 or 2019 to 2020 financial year. Cost estimates which apply to the years 2019 to 2020 and earlier could have significantly different cost in 2020 to 2021 due to the impact of COVID-19.

The aim of producing these single-year cost estimates is to increase transparency about the cost of non-structural tax reliefs where cost estimates were previously unavailable.

Although there is uncertainty surrounding the estimates, we have published cost estimates wherever possible, unless the estimate is potentially misleading to users. When deciding whether a relief cost estimate would be suitable for publication, we considered: the uncertainty rating and sensitivity to specific assumptions.

4.3 Distributional analysis

Pensions tax reliefs

The figures are based on HMRC administrative data and information compiled from a variety of sources by the Office for National Statistics (ONS). Costs are subject to large revisions and have a particularly wide margin of error.

The cost of the relief is calculated as the tax that would be paid on contributions to registered pension schemes, assuming they were not registered and the payments were subject to the normal tax rules applying to individuals’ remuneration. The estimates do not represent the yield from withdrawing tax relief as there would be significant changes in taxpayers’ behaviour.

Net pension tax relief reflects the net cost of tax relief on pension contributions and any investment growth within pensions, less the tax paid on payments from pension schemes to those accessing their pensions that year.

National Insurance Contributions (NICs) relief for employer pension contributions is a combination of:

• National Insurance relief for employers on the pension contributions they make
• the saving for individuals from the employers’ contributions not being treated as part of their gross income and subject to employee NICs (in accordance with how individuals’ own pension contributions are treated)

NICs relief is not provided to individual contributions (employees/self-employed) to pension schemes. NICs are not paid on any payments from pension schemes.

Net pension tax and NICs relief reflects the overall net cost of pensions, and is the sum of the line for net pension tax relief and the line for total pension NICs relief.

The cost of the tax relief on occupational pensions is broken down by private and public sector employees. This does not include relief on personal pensions.

The cost of tax relief on pension contributions is broken down by scheme type (defined contribution schemes and defined benefit schemes).

The cost of tax relief on pension contributions is broken down by the rate of relief the contributions received (basic rate, higher rate and additional rate). The Starter rate and Intermediate rate in Scotland are under the basic rate category.

Entrepreneurs Relief (Business Asset Disposal Relief)

The statistics relate to claims of Entrepreneurs’ Relief (ER) made in the 2019 to 2020 tax year. From 6 April 2020 Entrepreneurs’ Relief has been renamed Business Asset Disposal Relief, and the lifetime limit for the relief was reduced from £10 million of gains to £1 million from 11 March 2020.

Because the statistics cover the 2019 to 2020 tax year, there is only a small period (approximately 20 days) after the change in the ER lifetime limit which is covered in the statistics.

Only information for taxpayers who have a Capital Gains Tax liability is included in this analysis. Missing and unknown information is redistributed to other categories in line with statistical disclosure controls. Numbers of taxpayers are measured in thousands, and amounts of gain are measured in £ million. Gains are before the deduction of losses and the Annual Exempt Amount. Totals may not sum due to rounding.

4.4 Uncosted Reliefs

There are a number of reliefs in the publication for which no cost is currently available. In many cases this is due to a lack of administrative or good-quality targeted data available on which to base an estimate. HMRC has prioritised additional analytical resource to undertake a multi-year project to provide more public information on the costs for reliefs where none are currently published, prioritising non-structural reliefs.

Where reliefs lack administrative data, this can be because HMRC does not require information on the use of the relief on tax returns to establish tax liability. This may be because the relief is an exemption rather than a deduction from income or profits.

In such cases, HMRC uses suitable external information sources, if available, to estimate usage of the relief and thereby its cost. In general, HMRC avoids increasing taxpayers’ administrative burdens by requiring information to be submitted solely for statistical purposes unless the benefit of this would be expected to outweigh the cost.

The tax reliefs for which no estimate of cost is available are analysed by area of the tax system for reference. The table also provides a categorisation indicating the reason why the cost information is not available, as follows:

Reason code	Reason explanation
A	Information on the usage of this relief is not required in tax returns and cannot be reliably estimated from other data sources, and the cost of collection for statistical purposes is disproportionate.
B	Information on the usage of this relief is reported to HMRC, but the relevant data is not held in a centralised form, and the cost of gathering for statistical purposes is disproportionate.
C	Information on the usage of this relief is available, but the cost is not quantifiable as it is dependent on other unknown factors.
D	Introduction of the relief is too recent for any data to be available.
E	Exemption under the Freedom of Information Act, such as Data Protection.
F	Other (reason stated in each case).
N	We are reviewing what data is available, reason code to be allocated.
*	Data is available and requires further analysis.

5. Quality Assurance

We are committed to continuously improving the Official statistics we publish. A panel, led by senior HMRC analysts, was set up in 2018 to review the methodology of reliefs on a rolling basis. Our quality assurance processes were reviewed in October 2020 and we have in place checks to minimise the risk of error and a rigorous quality assurance review process. The publication is also peer-reviewed by different team members and overseen by senior analysts including the team’s senior statistician.

6. Headline Statistics

6.1 Multiple-year cost estimates

We produce 6-year cost estimates for 102 non-structural reliefs each year and have also produced single-year cost estimates for a further 118 reliefs for which cost estimates were previously unavailable.

The 5 largest reliefs are:

• Private Residence Relief from CGT (estimated at £28.4 billion in 2020 to 2021)
• Pensions tax relief (estimated at £42.7 billion in 2020 to 2021) from:
  • Income Tax (estimated at £22.9 billion in 2020 to 2021)
  • NICs (estimated at £19.8 billion in 2020 to 2021)
• VAT relief (estimated at £35.5 billion in 2020 to 2021), from:
  • Food (estimated at £20.7 billion in 2020 to 2021)
  • Construction and sale of new dwellings (estimated at £14.8 billion in 2020 to 2021)

The costs of these reliefs have grown modestly as a proportion of GDP over time.

Chart 1: the largest value tax reliefs within each tax head in 2020 to 2021

A full breakdown of the costs of the individual reliefs shown in the above chart is available in the Estimated cost of non-structural tax reliefs table.

6.2 Change in the cost of reliefs over time: largest reliefs

Of the 34 large non-structural reliefs for which we have provided additional commentary, 18 have increased in cost by more than 5% from 2016 to 2017 to 2020 to 2021 and 14 have either decreased or increased by less than 5%. As a share of GDP, 16 have increased in cost from 2016 to 2017 to 2020 to 2021 and 16 either have decreased or increased by less than 5%.

For this analysis, we have excluded First Time Buyers relief and Personal Savings Allowance where comparisons would be misleading. The former was introduced part-way through 2017 to 2018 and distorted in later years by the temporary SDLT holiday. The latter has a series break in 2018 to 2019 where the methodology has been substantially revised.

The overall trend in the total cost of reliefs is a gradual increase, driven by a small number of large reliefs. The ‘Detailed analysis for the most significant non-structural reliefs’ section contains commentary on the cost changes over time for these 34 large reliefs, with a change in cost over time typically attributed to changes to:

• underlying economic factors
• policy
• take-up
• tax base

Of these 34 large reliefs, the 10 reliefs with the largest changes between 2016 to 2017 and 2020 to 2021 are shown in chart 2.

Chart 2: largest percentage changes in the cost of large reliefs in the period 2016 to 2017 to 2020 to 2021

Relief name	Cost change (%)
IHT: Business property relief	119.35
CT: Research and development tax relief: small and medium companies scheme	104.35
IHT: Transfers between Spouses and Civil Partners	84.62
IHT: Gifts to charities	57.58
IT: Exemption for the first £30,000 of a termination award that would otherwise be chargeable as specific employment income	50.00
CT: Film tax relief	-35.85
VAT: Domestic passenger transport	-46.67
Multiple tax types: Employer Supported Childcare including workplace nurseries IT	-48.89
CT: Capital allowances: ring-fence oil business trades, first-year capital allowances for plant or machinery	-50.00
CGT: Business Asset Disposal Relief	-71.43

6.3 Change in the cost of reliefs over time: all costed non-structural reliefs

Across the 102 reliefs that have a 5-year cost estimate in these years, the cost of the majority have either stayed relatively constant (less than 5% change) or have increased since 2016 to 2017 (chart 3). This is broadly replicated across the different tax heads (chart 4).

Chart 3: A summary of how costs of non-structural reliefs have changed from 2016 to 2017 to 2020 to 2021

Cost change	Amount
Reduced by ≥ 25%	17
Reduced by < 25%	8
-5% < x < 5%	29
Increased by < 25%	17
Increased by ≥ 25%	29

Chart 4: Cost changes of non-structural reliefs by tax type

Tax head	Decrease	Low or no change (<5%)	Increase	Total
Capital Taxes	4	6	11	21
Corporation Tax	4	2	11	17
Income Tax	7	5	12	24
Multiple tax heads	1	2	1	4
NICs	0	1	3	4
Other	5	5	4	14
VAT	4	8	4	16

6.4 Single-year cost estimates

Since committing in 2019 to publish cost information for more reliefs, we have published cost estimates for a further 118 non-structural reliefs that were previously uncosted. Around half of these reliefs have a cost estimate that is negligible (chart 5).

Chart 5: Costs of reliefs with a single-year costing

Costing type	High	Medium	Low	Total
Negligible	20	15	25	60
£3 million < x ≤ £25 million	13	10	3	26
£25 million < x ≤ £50 million	10	1	4	15
£50 million < x ≤ £75 million	0	1	0	1
£75 million < x ≤ £100 million	5	0	0	5
£100 million < x ≤ £250 million	4	0	1	5
£250 million < x ≤ £500 million	1	2	0	3
£500 million < x ≤ £1 billion	1	1	0	2
> £1 billion	0	1	0	1

Of the 3 reliefs that cost over £500 million, 2 fall under the VAT tax head and one falls under Hydrocarbon Oil Duties.

6.5 Overall coverage

Of the 339 non-structural reliefs, 102 have a multi-year cost estimate updated each year. For the remainder that were uncosted in 2019:

• 118 have had a cost estimate published for a single year
• 25 are new costings of previously uncosted reliefs which have not been published due to dominance and disclosure rules
• 14 are uncosted reliefs which we have investigated as part of the project to increase the number of costed reliefs, and we have established they cannot be costed for the following types of reason:
  • insufficient data on the population using the relief
  • insufficient data on the expenditure to which the relief would apply
  • insufficient data on the activity that would qualify for the relief

Cost estimates have not yet been attempted for a further 80 non-structural reliefs.

Chart 6 below shows our progress since 2019 in costing reliefs which were uncosted in 2019.

Chart 6: Progress on producing single-year cost estimates for previously uncosted reliefs

Publication	Cost estimate published	Unable to estimate cost	Cost estimate withheld due to dominance and disclosure rules	Total
May 2020	46	2	0	48
October 2020	26	3	11	40
May 2021	29	4	12	45
December 2021	17	5	2	24

In previous publications we have reported that we published 47 new cost estimates in May 2020. One of the reliefs for which we published a new costing in May 2020 has now been re-classified as structural and is no longer counted.

6.6 Distributional analysis

Pensions reliefs

Public sector employee contributions receive £3.3 billion of the £5.4 billion occupations scheme relief on employee contributions in 2019 to 2020, up from £3 billion in 2016 to 17. Over the same period, private sector employee relief increased from £1 billion to £2.1 billion.

Employer contributions to occupational schemes received £21.1 billion in relief throughout 2019 to 2020, £8.6 billion of which was in the public sector. The share of relief going to the private sector fell by 4 percentage points over the four years prior.

Relief on individual contributions to defined benefit schemes in 2019 to 2020 is £3.8 billion, up from £3.6 billion in 2016 to 2017. Relief on individual contributions to defined benefit schemes increased from £2.1 billion in 2016 to 2017 up to £3.6 billion to 2019 to 2020. This covers both employees, self-employed and other individuals contributing to a private pension.

Employer tax relief on contributions to defined benefit (DB) schemes increased by £400 million to £15 billion over the four years to 2019 to 2020, whilst tax relief on contributions to defined contribution (DC) schemes increased £4 billion to £11.6 billion.

56% of tax relief on individual contributions were relieved at the higher and additional rates in 2016 to 2017, which fell to 50% by 2019 to 2020.

£10 billion of employer contributions tax relief was given at the basic rate in 2019 to 2020, and £4.8 billion at the higher and additional rates. In 2016 to 2017, this was £7.3 billion and £4.4 billion respectively.

Entrepreneurs relief

More than two thirds (70%) of Entrepreneurs’ Relief (ER) claimants in the 2019 to 2020 tax year were male, and this proportion is higher than that for all individuals liable to Capital Gains Tax (57%) (based on numbers published in the Capital Gains Tax National Statistics). These taxpayers realised 77% of all gains eligible for the relief.

In that year, most ER claimants had chargeable income and paid tax at either the higher or additional rate for Income Tax. Taxpayers who had income charged at the higher rate for Income Tax made up 39% of ER claimants and 41% of eligible gains. Those paying the additional rate of Income Tax made up 13% of the claimants and 31% of eligible gains.

Over three quarters or ER claimants (78%) were aged 45 or above and these taxpayers realised 86% of all eligible gains, which is broadly similar to the proportion seen across the whole Capital Gains Tax population. The 55 to 64 age category has the highest number of ER claimants and gains eligible for the relief.

The South East of England had the highest number of ER claimants, followed by London. Taken together, London and the South East of England made up 35% of individuals claiming the relief and 37% of eligible gains. These regions make up a smaller proportion of the total number of claimants and gains than that seen for all CGT taxpayers (40%) and gains (48%).

7. Detailed Analysis for the Most Significant Non-Structural Tax Reliefs

For 34 large non-structural tax reliefs the following section explores the changes in costs over time (in cash terms and as a share of nominal GDP). Using changes in cash terms needs careful interpretation, as the cost will tend to rise and fall in line with the underlying economic activity to which the relief applies.

Using changes in the share of nominal GDP provides one proxy to abstract from changes in underlying activity, to identify underlying changes in behaviour etc. The GDP data is taken from Table 1.4 of the most recent Office for Budget Responsibility Economic and fiscal outlook - supplementary economy tables.

Nominal GDP only approximately and indirectly captures the change in the underlying economic activity being relieved by assuming that some of the change in the economic activity is in line with the wider economic growth and economy-wide inflation; it also does not account for any structural changes to the tax system affecting the tax to which the relief applies.

The cost (£ million) and number of claimants estimates given in the following tables are outturn data except where followed by an asterisk, which indicates that they are a forecast. GDP % figures are rounded to 2 decimal places in the tables, year to year changes for reliefs with lower cost may be lost due to rounding.

7.1 Capital Gains Tax - Private residence relief

Description

Gains on the disposal of a residence is exempt from CGT to the extent it has been used as the person’s only or main residence.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	26,000	27,000	25,900	25,700	28,400	30,200*
Cost (% GDP)	1.29%	1.3%	1.2%	1.16%	1.35%	1.3%

Chart 7: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of the relief as well as the share of GDP are broadly in line with recent property market fluctuations. The cost of the relief is primarily driven by changes in house prices and transactions over time, which determine the amount of gains that are relieved, and the tax regime which determines the value of foregone Capital Gains Tax (CGT).

The estimates are based on outturn data on the value of UK property transactions until 2020 to 2021 and is grown in line with OBR determinants for the year after (2021 to 2022). The reduction in the main rates of CGT in April 2016 did not affect the cost of Private Residence Relief, as the rates on disposals of residential property and carried interest did not change.

Distributional analysis

Homeowners receive this relief when they sell their main home. The Ministry of Housing, Communities & Local Government’s (now the Department for Levelling up, Housing & Communities - DLUHC) English Housing Survey for 2019 to 2020 shows that 15.4 million out of a total 23.8 million households (65%) in England were owner-occupiers.

A 2015 ONS article reports that that home ownership is higher among older age groups, with homeownership among the 16 to 24 age group the lowest at 10%, and the highest rates of home ownership in the 65 to 74 age group at 78%. Statistics published by the Office for National Statistics (ONS) show that property ownership rates increase as income increases.

Evaluative summary

The objective of the relief is to encourage home ownership and mobility of labour.

The Office of Tax Simplification’s 2021 report, Capital Gains Tax – second report: Simplifying practical, technical and administrative issues, discusses this relief.

Forecast information

There is no original cost forecast for this relief, because it predates HMRC published estimates.

7.2 Capital Gains Tax - Business Asset Disposal Relief

Description

Certain disposals chargeable to CGT by individuals and qualifying trustees of all, or part of, a business are charged at 10% (up to lifetime limit of £1 million of gains as of 6 April 2020).

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	2,100	2,300	2,700	2,800	600*	900*
Cost (% GDP)	0.1%	0.11%	0.12%	0.13%	0.03%	0.04%
Number of claimants	-	43,000	46,000	46,000	-	-

Chart 8: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The increase in cost between 2016 to 2017 and 2019 to 2020 directly reflects increases in the value of gains realised, on which tax is liable at the Business Asset Disposal Relief (BADR) rate. This in turn was largely the result of equity price movements.

The number of taxpayers claiming BADR increased between 2016 to 2017 and 2018 to 2019, feeding through to higher costs throughout this period. The sharp fall in 2020 to 2021 reflects the government’s Budget 2020 announcement to lower the relief lifetime limit from £10 million to £1 million, implemented from 11 March 2020. Eligible disposals made on or after 11 March 2020 are affected, leading to a small impact for the 2019 to 2020 tax year.

The 2020 to 2021 and 2021 to 2022 costings are a forecast based on previous years’ actual data and the profile of the latest CGT forecast.

Distributional analysis

From 6 April 2020 Entrepreneurs’ Relief (ER) has been renamed Business Asset Disposal Relief. HMRC Capital Gains Tax statistics show that in 2019 to 2020, 28% of the total Capital Gains Tax revenue had come from gains qualifying for the relief. In 2019 to 2020, 14% of the individuals with qualifying gains of £1 million or more accounted for more than 74% of the qualifying gains and approximately 76% of tax charged at the (ER) rate.

3% of the individuals with qualifying gains of £5 million or more accounted for 34% of the qualifying gains and 35% of the tax charged at the ER rate. Less than 1% of total gains and tax paid at the relief rate was from Trusts.

Please see the additional distributional analysis tables for more insight into the distributional impact of the relief in 2019 to 2020.

Evaluative summary

The objective of this relief is to encourage genuine risk-takers and entrepreneurs to start up or invest in their own personal company over the long term.

Two reports commissioned by HMRC are available about this relief:

• 2015 report by IFF Research
• 2017 report by IFF Research

Forecast information

There is no published forecast cost for Business Asset Disposal Relief alone. When the new tax rate for entrepreneurs was announced at Spring Budget 2008, the published forecast cost of Business Asset Disposal Relief (then Entrepreneurs’ Relief) was combined with several other Capital Gains Tax reforms. These figures are not comparable to current estimates of the outturn cost of the relief.

7.3 Corporation Tax - Capital allowances: ring-fence oil business trades, first-year capital allowances for plant or machinery

Description

Accelerated rate (100%) of capital allowance for expenditure by a company on plant or machinery for use wholly in a ring-fence trade.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	1,500	1,500	1,300	1,400	750	810*
Cost (% GDP)	0.07%	0.07%	0.06%	0.06%	0.04%	0.03%
Number of claimants	-	<150	<150	<150	-	-

Chart 9: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The costings show the impact of capital allowances used to reduce taxable profits – hence they do not include capital allowances that generate taxable losses which can be carried forwards or backwards against profits from other years or surrendered as group relief.

The trend in profile reflects changes in oil price and hence profitability of relief claimants but also the amount of capital investment. Whilst oil prices recovered in the period 2016 to 2017 to 2019 to 2020 capital investment remained subdued; this resulted in a fluctuating profile for First Year Allowances relief. The drop in oil prices associated with COVID-19, together with cutbacks in planned capital expenditure (down more than 30% compared to 2019) explains the drop in 2020 to 2021.

Evaluative summary

The objective of this relief is to encourage investment to maximise the economic recovery of the UK’s oil and gas resources.

Forecast information

The published forecast cost for First-year plant and machinery capital allowances for Oil & Gas Ring Fence trades from its introduction at Budget 2002 covers the years 2002 to 2003 to 2004 to 2005. This time period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures are not comparable.

In addition, the forecast cost of the relief when it was introduced was combined with the revenue impact of introducing the 10% supplementary charge, and therefore the figures are not equivalent to current estimates of the outturn cost of the relief.

7.4 Corporation Tax - Film tax relief

Description

Film production companies can claim additional corporation tax on tax relief for film production expenditure in the UK. Companies not making a profit may be able to surrender the relief and receive tax credit.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	530	530	580	620	340*	510*
Cost (% GDP)	0.03%	0.03%	0.03%	0.03%	0.02%	0.02%
Number of claimants	-	680	740	800	-	-

Chart 10: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of film tax relief remained stable between 2016 to 2017 and 2017 to 2018, after which it increased at a gradual rate until 2019 to 2020. There are several factors that have affected the cost of film tax relief over this period. The relatively low British pound has made the UK particularly attractive for inward investors producing films in the UK.

The number of claimants has increased from 680 in 2017 to 2018 to 800 in 2019 to 2020. HMRC analysis, published in table 1.4 of Creative Industries Official Statistics, shows that in recent years at least 60% of the cost has come from a small number of large claims over £5 million. The cost of the relief is forecast to fall sharply in 2020 to 2021 before starting to recover in 2021 to 2022, because of the impact of COVID-19.

Distributional analysis

HMRC’s Creative industries statistics (2021) report that in 2020 to 2021, 900 claims for Film tax relief were made by 870 films, leading to relief payments totalling £611 million. 67% of all claims were for £100,000 or less. 4% of the claims were over £5 million, accounting for more than two-thirds of the total amount paid.

Evaluative summary

The objective of this relief is to encourage the production of films in the UK.

Forecast information

Film tax relief is included in the OBR’s corporation tax credits forecast in the Economic and fiscal outlook but the forecast for the cost of the Film tax relief is not published separately.

7.5 Corporation Tax - Patent box

Description

A reduced corporation tax rate for profits from patents etc.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	1,000	1,100	1,100	1,200*	1,200*	1,000*
Cost (% GDP)	0.05%	0.05%	0.05%	0.05%	0.06%	0.04%
Number of claimants	-	1,305	1,405	1,370	-	-

Chart 11: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The relief was phased in gradually from 2013 to 2014 to 2017 to 2018. This partially explains why the costs have risen up to 2017 to 2018, from which point the cost remained stable over time. Uncertainty around the OECD developing new rules for Intellectual Property regimes (with final rules not announced until October 2015) may also have put businesses off claiming.

In 2016, the government made changes to the design of the Patent Box to comply with new OECD rules for Intellectual Property regimes (the so-called ‘Nexus’ changes). Grandfathering’ rules allowed companies to claim under the pre-2016 rules in certain circumstances up until July 2021.

But businesses will now have to use the profit streaming method and R&D Fraction when calculating the relevant intellectual property profit. This is reflected in the forecast for 2021 to 2022, and the impact will be monitored and updated accordingly.

Distributional analysis

HMRC’s Patent Box statistics (September 2021) show that in 2018 to 2019, 1,405 companies claimed under this relief and the total value of relief claimed was £1.1 million. 28% of these companies were classified as ‘Large’ account for 92% of the relief claimed.

Over half of the companies were in the manufacturing sector (including pharmaceuticals), accounting for 32% of the total relief claimed, followed by the ‘Professional, Scientific and Technical’ sector which accounts for 26%. The highest number of claims were from companies registered in the South-East (16% of all claims) while North East had the lowest (2%). In terms of value, London-based companies claimed 48% of all relief.

Evaluative summary

The objective of this relief is to incentivise companies to retain and commercialise existing patents, develop new products and maintain the UK’s position as a world leader in patented technologies.

Some information on the use of this relief can be found in HMRC’s Patent Box Evaluation (2020).

Responses to HM Treasury’s 2011 consultation on the Patent Box are available.

Forecast information

See the Comparison of forecast costs to outturn section for this information.

7.6 Corporation Tax - Research & development tax relief: R&D Expenditure Credit

Description

Mainly for larger companies this relief allows them a taxable credit depending on their qualifying R&D expenditure.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	2,200	2,400	2,800	3,100	3,100*	3,000*
Cost (% GDP)	0.11%	0.12%	0.13%	0.14%	0.15%	0.13%
Number of claimants	-	8,100	8,500	9,400	-	-

Chart 12: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of the Research and Development Expenditure Credit (RDEC) scheme has increased throughout the period from 2016 to 2017 to 2019 to 2020. The rising costs reflect growth in qualifying R&D expenditure and increased take-up of the relief over time. The larger rise in 2018 to 2019 is partly due to the increase in the RDEC rate from 11% to 12% in January 2018.

The number of claimants has increased from 8,100 in 2017 to 2018 to 9,400 in 2019 to 2020. Costs are forecast to remain roughly stable in 2020 to 2021 and 2021 to 2022. The RDEC rate rose from 12% to 13% in April 2020 putting upward pressure on the cost, but this is expected to be offset by a fall in qualifying R&D expenditure because of COVID-19.

Distributional analysis

HMRC’s Research and Development Tax Credits statistics (2021) show that there were 85,900 claims for R&D tax credits in 2019 to 2020, of which 9,675 were for the RDEC scheme. In 2019 to 2020 the total amount of R&D expenditure against which R&D tax relief was claimed was £47.5 billion and 67% of this expenditure was by companies claiming under the RDEC scheme. There were 2,000 first-time applications for the RDEC scheme in 2018 to 2019, a slight increase from the previous year.

The regional analysis (Table RD5) of HMRC’s Research and Development Tax Credits statistics (2021) show that companies registered in London and the South East accounted for the highest number and value of RDEC claims in 2019 to 2020. However, the registered address may not be where the R&D activity takes place.

The industry sector analysis (Table RD6) shows that in 2019 to 2020 the number and value of RDEC claims were highest in the ‘Manufacturing’ sector, followed by the ‘Professional, Scientific & Technical’ sector.

Evaluative summary

The objective of this relief is to support and incentivise Research and Development (R&D) activity in the UK by companies, helping overcome a market failure (positive externality) which causes underinvestment in R&D. This is to incentivise business investment in R&D in the UK, in order to capture the associated spill-over benefits, such as improved skills.

HMRC’s Evaluation of the RDEC report (2020) studied the effectiveness of RDEC and found that for every pound spent on RDEC, between £2.40 and £2.70 is additionally invested in R&D by UK companies.

The tax information and impact note (TIIN) published in 2014 states that the rate change would increase aggregate R&D expenditure to benefit the economy more widely via the positive spill over effects (increased innovation and productivity in the wider economy).

Forecast information

RDEC is included in the OBR’s corporation tax credits forecast in the Economic and fiscal outlook but the RDEC forecast is not published separately.

7.7 Corporation Tax - Research and development tax relief: small and medium companies scheme

Description

This is a 130% Corporation Tax super-deduction for small or medium-sized (SME) companies based on qualifying R&D expenditure. Loss-makers can surrender all or part of their losses for a payable credit at a rate of 14.5% of the surrendered losses.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	2,300	2,700	3,500	4,400	4,700*	5,200*
Cost (% GDP)	0.11%	0.13%	0.16%	0.2%	0.22%	0.22%
Number of claimants	-	52,200	63,500	74,100	-	-

Chart 13: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of the SME scheme has been rising sharply in recent years. Increases to the payable credit rate from 11% to 14.5% in 2014 and the increase in the enhancement rate from 125% to 130% in 2015 have made the relief more generous and attractive to SMEs. There has also been increasing awareness of the scheme. The number of claimants has increased from 52,200 in 2017 to 2018 to 74,100 in 2019 to 2020.

These factors, together with the growth in qualifying R&D expenditure, have contributed to the rising costs. HMRC’s Research and Development Tax Credits Statistics provide distributional analysis on R&D SME relief, breaking down the number of claims and the amount of relief claimed by UK region, company size and sector.

Costs are forecast to continue to grow in 2020 to 2021 and 2021 to 2022, but at a slower rate than in previous years because of the impact of COVID-19.

Distributional analysis

HMRC’s Research and Development Tax Credits statistics (2021) show that that there were 85,900 claims for R&D tax credits in 2019 to 2020, of which 76,225 were under the SME scheme. In 2019 to 2020 the level of R&D expenditure against which R&D tax relief was claimed was £47.5 billion and 33% of this expenditure was by companies claiming under the SME scheme.

The number of first-time applicants for this scheme was 17,495 in 2018 to 2019, an increase of 25% from the previous year. R&D tax credit claims are concentrated in the lower cost bands (72% of the claims in cost bands up to £50k) which corresponds to the large volume of claims in the SME scheme.

The regional analysis (Table RD5) from HMRC’s statistics shows that companies registered in London and the South East accounted for the highest number and value of R&D SME claims in 2019 to 2020. Industry sector analysis (Table RD6) shows that in 2019 to 2020 the number of R&D SME claims was highest in the ‘Information & Communication’ sector, followed by ‘Manufacturing’ and ‘Professional, Scientific & Technical’.

The sector with the highest value of R&D SME claims in 2019 to 2020 was ‘Information & Communication’, followed by ‘Professional, Scientific & Technical’ and ‘Manufacturing’.

Evaluative summary

The objective of this relief is to support and incentivise R&D in the UK by SME companies, helping overcome a market failure (positive externality) which causes underinvestment in R&D. This is to incentivise business investment in R&D in the UK, in order to capture the associated spill-over benefits, such as improved skills.

The HMRC-commissioned, London Economics Evaluation of the R&D tax relief for SMEs (2020) assessed the direct impacts of this scheme by calculating an ‘additionality ratio’ (the R&D expenditure that would be generated by an increase in the generosity of the scheme relative to the additional cost incurred by Exchequer).

Forecast information

The R&D SME scheme is included in the OBR’s corporation tax credits forecast in the Economic and fiscal outlook but the R&D SME forecast is not published separately.

7.8 Hydrocarbon Oil Duties - Duty rate for marked gas oil and kerosene used as fuel in an engine, other than in a road vehicle or for heating

Description

Use of gas oil as motor fuel other than in road vehicles is included in the scope of the partial rebate that also applies to heating use. A partial rebate applies to kerosene used as motor fuel other than in a road vehicle. Includes use in off-road vehicles, rail, inland waterways, transport refrigeration units, generating sets etc.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	2,430	2,450	2,430	2,370	2,205	2,130*
Cost (% GDP)	0.12%	0.12%	0.11%	0.11%	0.11%	0.09%

Chart 14: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of this relief has remained stable throughout most of this period, reflecting relatively flat consumption. The fall in cost from 2019 to 2020 onwards is due to the impact of COVID-19, a mixture of changes to payment timings, policies affecting businesses and emerging economic impacts.

As detailed in an HMRC policy paper, the entitlement to use red diesel will be removed from most users from April 2022.

Distributional analysis

Domestic users of the relief are likely to be off the gas grid. 2013 research from the Department for Energy and Climate Change (now BEIS) shows that homes off the gas grid are more likely to be in rural areas.

Evaluative summary

Some oils and fuels are taxed at a lower (rebated) rate, historically because fuel duty was intended to be a tax on road vehicles. At Budget 2020, the government announced that it would remove the entitlement to use red diesel from most sectors from April 2022. The tax changes will ensure that most users of red diesel use fuel taxed at the standard rate for diesel from April 2022, like motorists, which more fairly reflects the harmful impact of the emissions they produce.

Removing most red diesel entitlements will also help to ensure that the tax system incentivises users of polluting fuels like diesel to improve the energy efficiency of their vehicles and machinery, invest in cleaner alternatives, or just use less fuel.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.9 Income Tax - Enterprise Investment Scheme (EIS)

Description

Tax relief against the income tax liability for individuals of 30% of the amounts subscribed for shares in early stage qualifying trading companies. The maximum amount subscribed in a tax year on which relief can be claimed is £2 million, but any amount over £1 million must be for shares issued by one or more knowledge-intensive companies.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	530	560	520	530	500*	555*
Cost (% GDP)	0.03%	0.03%	0.02%	0.02%	0.02%	0.02%
Number of claimants	-	37,305	37,955	36,950	-	-

Chart 15: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of EIS has fluctuated slightly year on year, with an increase in cost between 2016 to 2017 and 2017 to 2018 followed by a decreased cost in 2018 to 2019. The drop in 2018 to 2019 reflects new measures restricting the use of investment within the schemes.

Costs increased slightly in 2019 to 2020. We forecast costs will drop in 2020 to 2021 as a result of COVID-19, with costs increasing above and beyond pre-pandemic levels in 2021 to 2022. Whilst there are fluctuations in the number of investors year to year, National Statistics for EIS show that there were 21,835 investors in 2012 2013, rising to 36,950 investors in 2019 to 2020.

Over the period covered in this publication, venture capital schemes (EIS, SEIS, SITR, VCTs) have had a number of legislative changes to incentivise uptake or to manage abuse and avoidance, with corresponding effects on the cost of the schemes.

Distributional analysis

Table 8.5 of HMRC’s EIS statistics shows that in 2019 to 2020, the total amount of investment on which relief was claimed was just under £1.5 billion by 36,950 investors.

Around 92% of investors invested less than £100,000 (representing around 45% of the total amount of investment), with the remaining 8% investing amounts up to £2 million. These estimates are provisional and subject to revision in future publications.

Evaluative summary

The objective of this relief is to incentivise individuals to make new equity investments in high-risk, early stage Small and Medium-sized Enterprises (SMEs) to help them grow and develop.

An Ipsos MORI report commissioned by HMRC looked at the use and impact of EIS and the Venture Capital Trusts (VCT) from the point of view of investors, investee companies and VCTs.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.10 Income Tax - Exemption for the first £30,000 of a termination award that would otherwise be chargeable as specific employment income

Description

Where payments and benefits on termination of employment are below £30,000, they will not be taxed as employment income. The £30,000 threshold does not apply to any element of the payment that is post-employment notice pay (which is chargeable to income tax).

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	1,200	900	700	800	1,800*	900*
Cost (% GDP)	0.06%	0.04%	0.03%	0.04%	0.09%	0.04%
Number of claimants	-	-	-	250,000	500,000*	250,000*

Chart 16: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of the relief showed a large fall between 2016 to 2017 and 2018 to 2019, driven by falls in the number, and average level, of eligible redundancy payments. In April 2018 the Government also tightened the scope of the exemption, lowering relief further. The very large spike in the cost and recipients of the relief in 2020 to 2021 and fall thereafter reflects a spike in redundancies during 2020 to 2021 reflecting in part the impact of COVID-19.

Evaluative summary

The objective of this relief is to ensure that those who lose their job are supported through the tax system, while limiting the scope of employers avoiding tax by disguising salary or pay-offs as redundancy payments.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.11 Income Tax - Individual Savings Accounts

Description

Individuals do not pay tax on any income (i.e. dividends, interest and bonuses) they receive from their ISA savings and investments. Individuals do not pay tax on capital gains arising on their ISA investments. Providers do not pay tax on income or capital gains on investments used to back ISA policies. From 2017, not just a relief, but also a government bonus (Lifetime ISA).

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	2,600	2,850	3,500	3,400	3,050*	3,700*
Cost (% GDP)	0.13%	0.14%	0.16%	0.15%	0.15%	0.16%
Number of claimants	21,197,000	22,033,000	20,155,000	-	-	-

Chart 16: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of Individual Savings Accounts (ISAs) has generally increased across time. The limit was increased to £15,240 for the 2015 to 2016 tax year and £20,000 in 2017 to 2018 helps to explain the large increase in cost between 2017 to 2018 and 2018 to 2019. The increase in the cost of ISAs prior to this is driven by improved returns to stocks and shares and increased overall accumulated wealth in ISAs. Costs fell in 2020 to 2021 primarily due to reduced equity valuations in the wake of COVID-19.

It is projected that costs will continue to increase through time as greater wealth is built within ISAs. The number of beneficiaries has been fairly stable over the last few years, indicating that returns to savings and investments already held within ISAs are the primary drivers of the fluctuations in the cost of this relief.

Distributional analysis

HMRC Annual Savings Account (ISA) Statistics reported that in 2019 to 2020 approximately 13 million Adult ISAs were subscribed to £75 billion.

The average subscription was £5,738 in 2019 to 2020. The median ISA holder had an income between £20,000 and £29,999 with an average ISA saving of approximately £28,530. For individuals with an income of £150,000 or more, the average ISA saving was £88,970. Savers in higher income groups strongly preferred stocks and shares ISAs over cash ISAs while those in lower income groups preferred Cash ISAs.

The highest number of savers in 2018 to 2019 were in the 65 and over age group; this group also had the highest average ISA market value of £52,590 compared to £6,450 for under 25s and £7,750 for those aged 25 to 34. Females accounted for 50% of ISA holdings worth £50,000 or more and 52% of holdings worth up to £2,499. The highest proportion of adults holding ISAs in England was in the South West at 44% and the lowest was in London at 34%. The average for all English regions was 39%.

Evaluative summary

The objective of this relief is to encourage individuals to save over time by removing the tax liability for savings income. The Lifetime ISA aims to both encourage savings and support individuals under 40 to buy their first home or save for later life.

A 2007 HMRC report explored the levels of Individual Saving Account (ISA) ownership.

Forecast information

The published forecast cost for Individual Savings Accounts from its introduction at Budget 1998 covers the years 1998 to 1999 to 2000 to 2001. This time period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures are not comparable.

7.12 Income Tax - Marriage Allowance

Description

Gives a tax reduction to a person whose spouse or civil partner has elected for a reduced Personal Allowance.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	400*	460*	490*	540*	560*	580*
Cost (% GDP)	0.02%	0.02%	0.02%	0.02%	0.03%	0.03%
Number of claimants	-	1,570,000*	1,810,000*	2,020,000*	-	-

Chart 18: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

Since 2016 to 2017 the cost of Marriage Allowance has shown consistent steady increases each year as the number of claimants has increased. The estimated cost figures reflect the anticipated take up of the allowance when all backdated claims have been made in future tax years (up to 4 years later).

Estimates of the number of claimants are the latest available and reflect only successful claimants up to that point in time and not the anticipated full take up when all backdated claims have been made in future tax years (up to 4 years later).

Distributional analysis

The TIIN published in 2014 alongside the introduction of this relief indicated that this relief would impact the household sector as it would increase real household disposable income. It was expected that 35% of couples who would gain from this measure would be above the state pension age.

Evaluative summary

The objective of this relief is to recognise marriage and civil partnerships in the income tax system by providing a financial benefit where one spouse or civil partner has an income less than their Personal Allowance.

Forecast information

See the Comparison of forecast costs to outturn section for this information.

7.13 Income Tax - Personal Savings Allowance (PSA)

Description

0% tax rate on taxable savings income. Most taxpayers get PSA of £1,000, Higher Rate taxpayers get £500 PSA and PSA is not available to additional rate taxpayers.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	615	650	310	310*	300*	220*
Cost (% GDP)	0.03%	0.03%	0.01%	0.01%	0.01%	0.01%
Number of claimants	-	-	-	8,020,000*	8,160,000*	8,330,000*

Chart 19: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The decline in the cost of this relief from 2017 to 2018 to 2018 to 2019 is caused by new methodological updates for the 2018 to 2019 Survey of Personal Incomes (SPI), which have directly affected the estimate of the cost of relief for PSA. The grossing factors have been revised to better reflect the population of individuals submitting Self-Assessment returns.

There have also been changes to the PAYE Data for Bank and building society interest. From tax year 2018 to 2019 data on interest from banks and building societies are now received through NPS (National Insurance & PAYE system) data and no longer estimated through imputation. Any amounts of savings interest below £1 are rounded down to zero as per HMRC’s tax calculation.

Individuals do not have to report small amounts of savings which do not exceed the PSA. The number of individuals with savings income in excess of their PSA will decrease if interest rates or investment returns decrease. Therefore, changes in interest rates or investment returns have an impact on the cost of the PSA.

Distributional analysis

The TIIN published in 2016 alongside the introduction of the Personal Savings Allowance. explained that the relief would reduce income tax on savings for those on low and medium incomes and provide the most benefit to basic and higher rate taxpayers.

Evaluative summary

The objective of this relief is to support individuals to build up savings and improve their financial resilience by removing or reducing tax liabilities on their savings income.

Forecast information

There is no published forecast cost for the Personal Savings Allowance alone. When the allowance was announced at Spring Budget 2015, the published forecast cost of the Personal Savings Allowance was combined with a measure to increase ISA flexibility. These figures are not therefore comparable to current estimates of the outturn cost of the relief.

7.14 Income Tax - Registered pension schemes

Description

Covers net relief including relief on contributions, relief on investment returns, and tax paid in retirement (net of 25% lump sum).

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	16,700	18,700	19,500	22,100	22,900*	22,500*
Cost (% GDP)	0.83%	0.9%	0.9%	0.99%	1.09%	0.97%

Chart 20: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of registered pension schemes has increased from 2016 to 2017 until 2020 to 2021, and the cost as a proportion of GDP has also increased up to 2020 to 2021. The main drivers of costs during the period were automatic enrolment and pensions measures, which generated upward and downward pressures on cost respectively.

Automatic enrolment over the period 2012 to 2013 up to 2018 to 2019 saw approximately 10 million people being brought into pension savings via their employer. Minimum contribution rates for the individual and the employer have also increased between 2016 to 2017 and 2019 to 2020 which will have increased contributions and hence the cost of relief.

The OBR predict average earnings to fall in 2021 to 2022, which will feed into lower pension contributions and therefore cost of relief on these contributions, and cost as a proportion of GDP.

During the production process of the September 2021 statistics where the latest cost of the tax relief was published, HMRC identified missing data from a small number of pension providers. As a result, HMRC has received new data from pension providers for years 2016 to 2017 onwards and made appropriate revisions to the data and the methodology for the cost of tax relief to enhance the completeness of these statistics.

Distributional analysis

ONS workplace pensions statistics show that nearly eight of ten of UK employees had a workplace pension in April 2020.

HMRC Personal and Stakeholder pension statistics (Table 6) reported that in 2019/20, relief on contributions to occupational pension schemes accounted for 64% of pension tax relief and contributions to personal pension schemes and investment income of pension funds each accounting for 18% of pension tax relief. Relief on contributions to pensions made by self-employed individuals accounted for less than 1% of pension tax relief.

Evaluative summary

The purpose of UK tax-relieved pension saving is to provide benefits in retirement for the member and/or their beneficiaries. The government provides pensions tax relief to encourage individuals to take responsibility for retirement planning and to recognise that pensions is longer-term than other forms of saving.

HM Treasury published a consultation document in 2015 to seek views on whether pension tax relief should be reformed. The responses to the consultation have also been published.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.15 Income Tax - Charitable donations

Description

Exempts charitable donations from income tax (Higher Rate Relief, Payroll Giving, Gifts of Shares and Property, and Tax Repayments (including individual gift aid).

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	1,850	1,930	2,030	2,120	2,050	2,000*
Cost (% GDP)	0.09%	0.09%	0.09%	0.1%	0.1%	0.09%

Chart 21: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

Before 2020 to 2021, the cost of this relief generally increased over time. In 2020 to 2021 the cost of relief fell 2.4% due to COVID-19. The forecast for 2021 to 2022 is particularly uncertain.

Distributional analysis

HMRC’s UK charity tax statistics show that among those individuals that completed a Self-Assessment form in 2019 to 2020, donations are most likely from those individuals whose main source of income is from a pension (22% of these Self-Assessment (SA) taxpayers) and from outside of the UK (19%). Donations were most likely from those aged over-65 (21%) and least likely under-25s (3%). Taxpayers in the South East were most likely to declare a donation (15%) followed by London (13% of SA taxpayers).

Evaluative summary

The objective of this relief is to support charitable activities, while not providing relief to organisations simply because they are charities.

A 2016 research report from Quadrangle commissioned by HMRC found that Gift Aid was added to 52% of the total value of donations and the amount of Gift Aid claimed back by charities was £1.16 billion.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.16 Income Tax and Corporation Tax - Capital allowances - annual investment allowance

Description

Annual Investment Allowance provides 100% income tax/corporation tax relief on qualifying capital expenditure up to a limit of £200,000. This limit has been temporarily increased to £1 million per annum for the period 1 January 2019 to 31 March 2023 and will revert to £200,000 from 1 April 2023.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	3,000	2,900	3,000	4,100	3,800*	2,300*
Cost (% GDP)	0.15%	0.14%	0.14%	0.18%	0.18%	0.1%
Number of claimants	-	1,225,000	1,225,000	1,220,000	-	-

Chart 22: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

Between 2016 to 2017 and 2018 to 2019 the cost of Annual Investment Allowance (AIA) was relatively stable, followed by a large increase in 2019 to 2020, and then a projected fall in 2021 to 2022. The number of beneficiaries of the AIA has remained stable from 2017 to 2018 to 2019 to 2020 but there have been several policy changes accounting for variation in the cost (both outturn and forecast cost) of the relief.

At Autumn Budget 2018 the government announced a temporary increase from £200,000 to the AIA threshold of £1 million from January 2019, reflected in the marked increase in 2019 to 2020. The Government announced in Autumn Budget 2021 that this would be retained until March 2023, increasing costs from 2019 to 2020 onwards.

In 2021 to 2022 we project that the costs will fall, as we expect much expenditure that would usually claim the 100% AIA would instead claim the 130% Super-Deduction, introduced in April 2021.

Distributional analysis

HMRC’s Corporation Tax statistics (table 12b) show that in 2019 to 2020 the sector which claimed the highest amount of AIA claimed was Manufacturing (£3.7 billion) followed by Wholesale and Retail Trade, Repairs (£3.4 billion). The sector with the lowest amount of AIA claimed was Mining and Quarrying (£115 million).

A TIIN published in 2018 explained the temporary increase in the AIA limit to £1,000,000 from 1 January 2019 for 2 years. This document mentions that this measure will most likely impact large and medium- sized businesses who are spending above the £200,000 threshold. The assessment of the impact on small and micro businesses concluded that the temporary increase was expected to benefit the smallest large businesses and the largest small and micro businesses.

Evaluative summary

The Annual Investment Allowance (AIA) provides a major simplification benefit by lowering the administrative burden firms, and particularly Small and Medium-sized Enterprises (SMEs), face when calculating their capital allowances entitlement.

In offering a 100% tax deduction equivalent to the level of qualifying expenditure in the year it is made, up to an annual limit, the AIA also represents an investment incentive by providing a major cash-flow benefit for businesses investing in qualifying plant and machinery assets.

The OBR Economic and fiscal outlook (October 2018) discusses the impact of the temporary increase in the AIA threshold on business investment.

Forecast information

The published forecast cost for the Annual Investment Allowance scheme when announced at Budget 2007 covers the years 2007 to 2008 up to 2009 to 2010. This time period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures are not comparable.

7.17 Income Tax and National Insurance contributions - Employer Supported Childcare including workplace nurseries

Description

Relief from income tax for an employee in respect of employer provided care (unlimited), childcare vouchers (currently, up to £55 per week) and directly-contracted childcare (currently, up to £55 per week).

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	900	930	940	750	460	340*
Cost (% GDP)	0.04%	0.04%	0.04%	0.03%	0.02%	0.01%
Number of claimants	-	-	870,000	700,000	470,000	-

Chart 23: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of the Employer Supported Childcare tax relief saw slight year on year increases in the period from 2016 to 2017 to 2018 to 2019 and a significant decrease in 2019 to 2020 and 2020 to 2021. The slight year on year increases in cost from 2016 to 2017 to 2018 to 2019 reflect higher number of users of the scheme.

Childcare vouchers closed to new entrants in October 2018, subsequently the number of users and the cost of Employer Supported Childcare has reduced significantly in 2019 to 2020 and even more so in 2020 to 2021. Additionally, a fall in the average individual value of Childcare vouchers cut costs further in 2020 to 2021.

Evaluative summary

The objective of this relief is to support working parents by making childcare more affordable and engaging employers on the issue of childcare.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.18 Inheritance Tax - Business property relief

Description

Relief from IHT on the transfer of relevant business property.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	465	810	930	965*	1,020*	1,040*
Cost (% GDP)	0.02%	0.04%	0.04%	0.04%	0.05%	0.04%
Number of claimants	2,200	3,330	3,240	-	-	-

Chart 24: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of business property relief (BPR) showed a marked rise in 2017 to 2018 and 2018 to 2019. In 2017 to 2018, both the number of estates claiming relief and the amount of estate value relieved saw large increases, increasing the cost of the relief overall. In 2018 to 2019, while the number of claimants fell slightly, this was more than offset by the amount of estate value relieved increasing further.

Distributional analysis

HMRC’s Inheritance Tax Statistics show that the total amount of estate value relieved in 2018 to 2019 was £2.53 billion, of which £1.72 billion was on unquoted shares (claimed by 2,320 estates) and £0.81 billion (claimed by 1,160) was on other business property. It is important to note here is that the values being relieved are not the same as the cost to the Exchequer of the relief. This is because the value of assets qualifying for the relief are not included in the chargeable estate for IHT purposes.

Had the relief not been available, the value of those assets would have been included within the chargeable estate for IHT purposes, and after the application of available tax-free allowances, would face the relevant marginal tax rate. This determines the cost of the relief to the Exchequer.

Evaluative summary

The objective of this relief is to ensure businesses do not have to be sold or broken up following the death of the owner.

HMRC commissioned research from IFF Research in 2017.

Forecast information

The original cost estimates predate HMRC’s official publications of costs of reliefs.

7.19 Inheritance Tax - Gifts to charities

Description

Gifts to charities and property held on trust for charitable purposes are exempt from IHT.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	495	905	600	645*	780*	750*
Cost (% GDP)	0.02%	0.04%	0.03%	0.03%	0.04%	0.03%
Number of claimants	9,890	11,700	10,100	-	-	-

Chart 25: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of the exemption of transfers to charities on death showed a large rise in 2017 to 2018 before falling back in 2018 to 2019. In 2017 to 2018, the number of estates and value of exempted transfers both rose. In 2018 to 2019, while the number of estates making such exempt transfers fell, the value of exempted property fell proportionately further.

Distributional analysis

HMRC’s Inheritance Tax Statistics show that in 2018 to 2019 this exemption was used by 10,100 estates above the Inheritance Tax nil rate band and £1.7 billion of qualifying property was exempted. It is important to note here is that the values being relieved are not the same as the cost to the Exchequer of the relief. This is because the value of assets qualifying for the relief are not included in the chargeable estate for IHT purposes.

Had the relief not been available, the value of those assets would have been included within the chargeable estate for IHT purposes, and after the application of available tax-free allowances, would face the relevant marginal tax rate. This determines the cost of the relief to the Exchequer.

The latest available tax year for which complete information is available is 2018 to 2019, and an estate can make more than one relief claim. For more information, please see the background quality report accompanying the statistics.

Evaluative summary

The objective of this relief is to encourage charitable giving.

HMRC commissioned a report from IFF Research and the Office of Tax Simplification published a report on simplifying the design of Inheritance Tax.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.20 Inheritance Tax - Transfers between Spouses and Civil Partners

Description

Transfer of any asset to a spouse/civil partner is exempt from IHT.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	2,080	3,610	2,940	3,120*	3,840*	3,800*
Cost (% GDP)	0.1%	0.17%	0.14%	0.14%	0.18%	0.16%
Number of claimants	18,600	36,400	22,100	-	-	-

Chart 26: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of the exemption of transfers on death to surviving spouses and/or civil partners showed a sharp rise in 2017 to 2018 before falling back in 2018 to 2019. In 2017 to 2018 the number of estates and total estate value exempted, saw large increases. In 2018 to 2019, both the number of estates using the exemption and the total value exempted fell; but the former fell proportionately more.

Distributional analysis

HMRC’s Inheritance Tax Statistics for 2018 to 2019 show that this exemption continues to be the largest exemption set against assets. In 2018 to 2019, 22,100 estates made use of this exemption, and £13.8 billion of qualifying property was exempted.

HMRC does not publish separate distributional analysis for estates using the spouse and civil partner exemption, and the exemption is a long-standing feature of the IHT system. However, in general those who benefit from this exemption are likely to be aged 65 and above at the time of their death. Also the estate that benefits tends to be the estate of someone who is male.

This is because only married or civil partnered individuals are able to benefit from the exemption by definition, and males have shorter life expectancies than females. As such, given the majority of marriages and civil partnerships are between opposite-sex individuals, females have a higher probability of living longer than their male spouse or civil partner and of receiving the latter’s exempted transferred assets.

Evaluative summary

The objective of this relief is to recognise the unique legal position of marriage and civil partnership.

HMRC commissioned research on inheritance tax from IFF Research.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.21 National Insurance Contributions - Contributions to, and benefits from, registered pension schemes

Description

Payments by way of an employer’s contribution towards a registered pension scheme or by way of any benefit pursuant to a registered pension scheme are disregarded in the calculation of earnings for the purposes of earnings-related contributions.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	15,000	16,600	17,400	19,700	19,800*	19,700*
Cost (% GDP)	0.74%	0.8%	0.8%	0.89%	0.94%	0.85%

Chart 27: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of registered pension relief has increased from 2016 to 2017 until 2020 to 2021. The relief is a combination of National Insurance relief for employers on the pension contributions they make as well as the saving for individuals from the employers’ contributions not being treated as part of their gross income and subject to employee National Insurance contributions (in accordance with how individuals’ own pension contributions are treated).

Thus, the two main drivers of costs during the period were automatic enrolment and pensions measures, which generated upward and downward pressures on cost respectively. Automatic enrolment over the period 2012 to 2013 up to 2018 to 2019 saw approximately 10 million people being brought into pension savings via their employer. Minimum contribution rates for the individual and the employer have also increased between 2016 to 2017 and 2019 to 2020 which will have increased contributions and hence the cost of relief.

The OBR predict average earnings to fall in 2021 to 2022, which will feed into lower pension contributions and therefore cost of relief on these contributions, and cost as a proportion of GDP.

During the production process of the September 2021 statistics where the latest cost of the tax relief was published, HMRC identified missing data from a small number of pension providers. As a result, HMRC has received new data from pension providers for years 2016 to 2017 onwards and made appropriate revisions to the data and the methodology for the cost of tax relief to enhance the completeness of these statistics.

Distributional analysis

ONS workplace pensions statistics show that nearly eight in ten UK employees had a workplace pension in April 2020. Only 20% of individuals outside the Automatic Enrolment age (aged 16 to 21 years) had a workplace pension, compared to 80% in the next age band (22 to 29 years). The gender gap for pensions was negligible in 2020.

Evaluative summary

The objective of this relief is to encourage employers to contribute to their workers’ pensions to provide them with an income in retirement.

HM Treasury published a consultation document in 2015 to seek views on whether pension tax relief should be reformed. The responses to this consultation were published in 2016.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.22 National Insurance Contributions - Employment allowance

Description

Allows up to £2,000 off employer NICs from April 2014, up to £3,000 off from April 2016 and up to £4,000 off from April 2020. From April 2020 the relief applies to employers with a NICs liability of less than £100,000 in the previous tax year.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	2,000	2,100	2,200	2,200	2,400	2,400*
Cost (% GDP)	0.1%	0.1%	0.1%	0.1%	0.11%	0.1%
Number of claimants	-	-	1,175,000	1,198,000	1,086,000	-

Chart 28: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of Employment Allowance has steadily increased over time. In April 2020 the allowance increased from £3,000 to £4,000. It was also restricted to businesses who have a NICs liability of under £100,000 in the previous tax year. The former more than offset the latter meaning an overall increase in the cost of the relief in 2020 to 2021.

Distributional analysis

HMRC’s Employment Allowance take-up statistics show that approximately 1,086,000 employers had benefitted from this relief in 2020 to 2021.

The three largest sectors in terms of take-up accounted for 41% of the take-up of this relief, with the largest sector being ‘Wholesale and retail trade; repair of motor vehicles and motorcycles’ with 17% of the take-up (180,000 employers). ‘Professional, scientific and technical activities’ was the second largest sector with 134,000 (12%) employers benefitting and ‘Construction’ was the third largest sector with 131,000 (12%) employers benefitting from this allowance.

This report also shows that the largest three regions: London, South East and North West, accounted for 41% of all employers that benefitted from this allowance. In London, 185,000 (17%) employers benefitted followed by 155,000 (14%) in South East and 111,000 (10%) employers based in the North West. Furthermore, 86% of the businesses that claimed this relief were ‘Micro’ employers (1 to 9 employees).

Evaluative summary

The objective of this relief is to support small businesses and charities and reduce the barriers they face by reducing the costs of employment.

Forecast information

See the Comparison of forecast costs to outturn section for this information.

7.23 National Insurance Contributions - Relief on employer National Insurance Contributions for employees under 21

Description

A zero rate of Class 1 secondary NICs for employees under 21 up to the upper earnings limit.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	570	600	610	630	560	630*
Cost (% GDP)	0.03%	0.03%	0.03%	0.03%	0.03%	0.03%
Number of claimants	-	-	290,000	295,000	270,000	-

Chart 29: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost has gradually increased up to 2019 to 2020, though the cost as a share of GDP has remained stable. The relief can be claimed across all sectors for all qualifying employees, therefore trends reflect general employment and wage patterns, rather than linking to any specific sector. The decrease in 2020 to 2021 was likely due to COVID-19.

Evaluative summary

The objective of this relief is to encourage employers to employ individuals under the age of 21. This also supports youth employment.

HMRC commissioned research from Kantar covering this relief. The report gathered feedback from businesses that claimed this relief and a few businesses that did not claim the relief despite being eligible.

Forecast information

See the Comparison of forecast costs to outturn section for this information.

7.24 Stamp Duty Land Tax - First Time Buyers Relief

Description

Relief from SDLT for first time buyers (as defined) of purchases of residential property for £500,000 or less, provided the purchaser intends to occupy the property as their only or main residence. The relief applies to purchases from 22 November 2017.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	-	160	520	540	190	430*
Cost (% GDP)	-	0.01%	0.02%	0.02%	0.01%	0.02%
Number of claimants	-	-	219,000	222,700	94,000	-

Chart 30: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

First-time buyers’ relief was announced and implemented at Autumn Budget 2017. The figure for 2017 to 2018 represents the estimated cost to HMRC for the remainder of the year and therefore has a smaller cost than the subsequent years. The cost of first-time buyers’ relief was relatively stable from 2018 to 2019 to 2019 to 2020.

COVID-19 and the introduction of the Stamp Duty land Tax holiday between July 2020 to September 2021 caused the large fall and then partial rebound in the amount of relief claims and the amounts relieved in both 2020 to 2021 and 2021 to 2022.

Distributional analysis

HMRC’s Annual Stamp Tax statistics (Table 6d) show that 80% of relief claimants in 2020 to 2021 are First Time Buyers (FTBs) in their 20s and 30s, with slightly more users in their 20s. This has reduced since the first full year of its introduction in 2018 to 2019 when this age group accounted for 82% of all claimants.

In 2020 to 2021 in the £125,000 to £300,000 price band (where all of the SDLT is relieved) around 49% of users are in their 20s and 33% in their 30s. In the £300,000 to £500,000 price band (where a 5% reduced rate is paid on the amount above £300,000) around 44% of users are in their 30s and 32% in their 20s.

Greater than 75% of property transactions eligible for the relief are in the £125,000 to £300,000 price band, however more relief is paid out on more expensive purchases. Therefore, although a larger volume of people in their 20s benefit from the relief, older users of the relief may benefit more in monetary terms.

Evaluative summary

The objective of this relief is to support home ownership by reducing the upfront cost of buying a home for first-time buyers.

A similar, temporary, relief was introduced in March 2010 (covering homes between £125,001 and £250,000), detailed in analysis by HMRC.

Forecast information

See the ‘Comparison of forecast costs to outturn section for this information.

7.25 Value Added Tax - Construction and sale of new dwellings (includes refunds to DIY builders)

Description

Zero rating of construction and sale of new relevant residential and relevant charitable buildings.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	13,200	14,100	15,600	16,300*	14,800*	17,100*
Cost (% GDP)	0.65%	0.68%	0.72%	0.73%	0.71%	0.74%

Chart 31: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of this relief has increased over time, driven by the number and average value of houses built. According to Office for National Statistics (ONS) data, the average new dwelling price increased by 6% between 2016 to 2017 and 2019 to 2020. The number of permanent dwellings completed in England also increased in the same time period by 12% according to MHCLG (now DLUHC) statistics.

As the construction and sale of new dwellings makes up most of the relief, these changes are the main causes of cost changes over time. The estimate for 2020 to 2021 is a projection based on the most up-to-date figures available from the ONS for housing completions in England in the early part of the year (which were adversely affected by COVID-19) and new dwelling price statistics for the whole year.

Distributional analysis

The ONS Construction annual tables (3.3 and 3.6) show that in quarter 3 2019, the construction industry in England and Wales was made up of around 315,000 firms and employed around 1.2 million workers. The ONS Residential property sales dataset 7 (table 1a) shows that for year ending September 2019, around 112,000 new dwellings were sold in England and Wales.

Evaluative summary

The objective of this relief is to incentivise the construction of new homes.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.26 Value Added Tax - Domestic fuel and power

Description

Reduced rate of VAT on supplies of domestic fuel and power.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	4,500	4,700	4,700	5,000	4,500	5,200*
Cost (% GDP)	0.22%	0.23%	0.22%	0.22%	0.21%	0.22%

Chart 32: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of the reduced rate for domestic fuel and power has remained relatively stable throughout the period. Variations in individual years are mainly a reflection of fluctuating energy prices charged by suppliers.

Distributional analysis

ONS statistics (tables 3.1.4.4 and 3.2.4.4) show that, on average, expenditure on fuel and power by people living in households that are further down the income distribution is larger as a proportion of their total expenditure. However, higher income deciles spend more on fuel and power in absolute terms.

Evaluative summary

The objective of this relief is to reduce costs for individuals on their energy bills.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.27 Value Added Tax - Domestic passenger transport

Description

Zero rating applies to the transport of passengers where the mode of transport takes more than 10 passengers, by Post Bus or on the UK portion of scheduled flights.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	4,500	4,500	4,700	4,800	2,400	2,900*
Cost (% GDP)	0.22%	0.22%	0.22%	0.22%	0.11%	0.13%

Chart 33: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of the zero rate for domestic passenger transport rose steadily to 2019 to 2020 reflecting increases in fare prices, and growth in passenger journeys (partly the result of population growth). The estimate for 2020 to 2021 reflects the sharp reduction in use of public transport during COVID-19.

Distributional analysis

ONS statistics (tables 3.1.7.3 and 3.2.7.3) show that average household spend on transport services increases with income decile, both as a proportion of household expenditure and in monetary terms.

The Department for Transport (DfT) - Transport Statistics Great Britain 2020 provides details of travel patterns.

Evaluative summary

The objective of this relief is to incentivise passengers to use high-capacity public transport services such as bus, train, ship and aircraft.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.28 Value Added Tax - Drugs and supplies on prescription

Description

Zero rating applies to drugs dispensed by a pharmacist for personal use.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	3,100	3,100	3,100	3,200	3,300*	3,400*
Cost (% GDP)	0.15%	0.15%	0.14%	0.14%	0.16%	0.15%

Chart 34: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of drugs and supplies on prescription has gradually increased in nominal terms but has remained relatively stable as a proportion of GDP.

Distributional analysis

NHS England’s prescription cost analysis (table A4) shows that in 2018, 89.2% of prescription items dispensed in the community were free of charge. However, where the prescription is free of charge, the relief still has a cost as it includes the cost to the NHS of the prescription.

Evaluative summary

The objective of this relief is to contribute to healthcare costs by ensuring no VAT is charged on the dispensing of medicinal items on prescription by pharmacies to individuals.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.29 Value Added Tax - Food

Description

Zero rating of most food (including cold food for takeaway).

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	17,600	18,400	18,900	19,500	20,700	20,700*
Cost (% GDP)	0.87%	0.88%	0.87%	0.88%	0.99%	0.89%

Chart 35: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of the relief has risen gradually in nominal terms, and increased slightly more during the COVID period in 2020 to 2021 as consumers maintained expenditure on food purchases, and even increased expenditure during the closure of much of the hospitality sector. As a proportion of GDP it has remained broadly static, except during COVID-19 in 2020 to 2021 when expenditure on food did not follow the downturn of the wider economy.

Distributional analysis

ONS statistics (tables 3.1.1.1 and 3.2.1.1) show that people living in households with lower incomes spend more on food as a proportion of total expenditure. However, higher income deciles spend more on food in absolute terms.

Evaluative summary

The objective of this relief is to reduce the cost for most food and drink which is meant for human consumption.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.30 Value Added Tax - The VAT Zero rate for children’s clothing and protective footwear and helmets

Description

Zero rating of children’s clothing and footwear and protective boots and helmets (including motorcycle and bicycle helmets).

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	1,700	1,800	1,900	1,900	1,700	2,000*
Cost (% GDP)	0.08%	0.09%	0.09%	0.09%	0.08%	0.09%

Chart 36: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

Though the nominal annual cost of children’s clothing was gradually increasing, the cost as a share of GDP remained broadly stable until COVID-19 where expenditure on children’s clothing fell in line with the general economic downturn.

Distributional analysis

ONS statistics (tables 3.1.3.1 and 3.2.3.1) show that, on average, household spending on children’s clothing as a proportion of total household expenditure is relatively flat across the income distribution. However, the amount of money spent on children’s clothing by higher income deciles is typically higher.

Evaluative summary

The objective of this relief is to support families by reducing the cost of children’s clothing and encourage occupational and road health and safety by reducing the cost of protective equipment.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.31 Value Added Tax - VAT registration threshold

Description

Exception from compulsory registration for VAT for traders with taxable supplies below the registration threshold.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	1,700	1,800	1,900	1,700	1,600*	1,700*
Cost (% GDP)	0.08%	0.09%	0.09%	0.08%	0.08%	0.07%

Chart 37: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of the relief was on a rising trend due to the growing population of very small businesses until 2018 to 2019. From 2018 to 2019 onwards the threshold was frozen rather than being increased in line with the Retail Prices Index (measures announced at Autumn Budget 2017 and Budget 2018). This has had the effect of drawing more businesses into VAT registration, thereby reducing the cost of the relief.

Distributional analysis

BEIS statistics state that the number of private sector businesses at the start of 2021 was 5.6 million. HMRC statistics show that 2.4 million businesses were registered for VAT at this point.

This indicates that there were around 3.2 million businesses that were not registered for VAT, as a result of this relief. Some 46% (1.1 million) of VAT registered businesses had turnover below the registration threshold. These businesses are not required to register as a result of the relief, but have opted to register voluntarily (see Table 5a in the VAT statistics tables 2019 to 2020).

Evaluative summary

The objective of this relief is to reduce administrative burdens by keeping businesses operating below the VAT registration threshold, that do not wish to register for VAT, out of the VAT system altogether.

HM Treasury published a consultation document in 2018 to explore the VAT registration threshold. The responses to the consultation have also been published.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.32 Value Added Tax - Vehicles and other supplies to disabled people

Description

Zero rating of certain aids and qualifying motor vehicles to disabled people.

The cost estimates below are for vehicle supplies only. The cost of the relief for supplies other than vehicles is provided as a single year estimate in the non-structural cost estimates tables.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	840	840	840	840	830	850*
Cost (% GDP)	0.04%	0.04%	0.04%	0.04%	0.04%	0.04%

Chart 38: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of vehicles supplied to disabled people tax relief has remained stable across time, with the cost as a share of GDP falling slightly.

Distributional analysis

The cost of this relief includes the VAT zero rating of leases of cars through the Motability scheme and the sale of the cars at the end of the leases. A 2018 NAO report into the Motability scheme reviewed the tax concessions provided by the government which include the VAT zero rating, and the impact of this on lease prices offered by Motability.

Evaluative summary

The objective of this relief is to assist disabled people with the additional costs associated with purchasing specialist items, or adapting items, to aid them with their disability, a wide range of goods and services are zero rated.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.33 Value Added Tax - Water and sewerage services

Description

Zero rating applies to the supply of sewerage services and water (otherwise than for use in an industrial business activity).

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	2,150	2,150	2,250	2,300	2,250	2,350*
Cost (% GDP)	0.11%	0.1%	0.1%	0.1%	0.11%	0.1%

Chart 39: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

From 2016 to 2017 the nominal cost of the water and sewerage services tax relief has gradually increased, though the cost as a share of GDP has remained broadly flat. The cost of the relief is driven by (regulated) water prices, and to a lesser extent by population growth. Water prices have been linked to RPI inflation which tends to be higher than CPI inflation.

Distributional analysis

ONS statistics (tables 3.1.4.3 and 3.2.4.3) show that spending on water supply as a proportion of income is higher for people living in households with lower incomes as a proportion of total expenditure. However, the amount of money spent on water supply by those living in households further up the income distribution is higher.

ONS statistics (table A35.4.3) show that average weekly spend on water supply is highest in London and the South West, when compared to other UK regions.

Evaluative summary

The objective of this relief is to contribute to access to clean water through relieving individuals from VAT on the supply of water and sewage services including disposal for all except those involved in an industrial activity.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

7.34 Value Added Tax - Zero rate for printed matter and e-publications

Description

Zero rating applies to supplies of books, newspapers, magazines etc. in printed form and when supplied electronically.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Cost (£ million)	1,400	1,400	1,400	1,400	1,400	1,500*
Cost (% GDP)	0.07%	0.07%	0.06%	0.06%	0.07%	0.06%

Chart 40: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

Until 2019 to 2020 the cost remained static in nominal terms but was falling as a proportion of GDP. The cost estimates reflect the extension of the relief to e-publications with effect from 1 May 2020, which adds approximately £200 million to the cost in a full year. However, consumption was generally weak in 2020 to 2021 because of COVID-19, offsetting the increase in cost due to the change of policy in that year.

The increase in cost of the overall relief due to the policy change is reflected in the forecast for 2021 to 2022.

Distributional analysis

ONS statistics (tables 3.1.9.5 and 3.2.9.5) show that, on average, expenditure on newspapers and magazines by people living in households with lower incomes is larger as a proportion of their total household expenditure. On average, spending on books as a proportion of total expenditure is relatively flat across the income distribution. However, higher income deciles spend more on these items in absolute terms.

Evaluative summary

The objective of this relief is to support literacy and reading by reducing the cost of books, newspapers, magazines etc. in printed and electronic form.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

8. Comparison of forecast costs to outturn

We have incorporated comparisons of the outturn costs of tax reliefs against their forecast cost when announced where it is available. We have focused on non-structural tax reliefs which have been announced since the introduction of the OBR in 2010.

Links to costing notes published at the fiscal events when these reliefs were introduced are provided, which show the original forecast numbers and explain the costing methodology. It is difficult to compare the costs of all tax reliefs with published government forecasts for a number of reasons:

• projections cover a maximum of five years and might not overlap with the period covered in this publication
• cost forecasts published at Budget often represent the cost of policy changes to reliefs rather than the whole cost of a relief
• wider economic changes and technological developments affect the outturn cost of the relief and are unforeseeable when they are announced

8.1 Employment Allowance

Description

Allows up to £2,000 off employer NICs from April 2014, up to £3,000 off from April 2016 and up to £4,000 off from April 2020. From April 2020 the relief applies to employers with a NICs liability of less than £100,000 in the previous tax year.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	1,595	1,725	-	-	-	-
Cost Estimate (£ million)	2,000	2,100	-	-	-	-
Difference (£ million)	405	375	-	-	-	-
Percentage difference	25%	22%	-	-	-	-

Commentary on differences between outturn cost and original forecast

The outturn cost is consistently higher than originally forecast, with a larger difference in 2016 to 2017. The main reasons are due to policy changes since the introduction of the relief. When implemented in April 2014 the value of the allowance was £2,000. As detailed below the allowance has subsequently increased, contributing to the increase in cost. In April 2015, the policy was extended to domestic employers of care and support workers. This increased the number of claimants and therefore the cost of the relief.

In April 2016, the policy was restricted to exclude sole-director only companies, meaning that limited companies where the director is the only employee paid earnings above the Secondary Threshold for Class 1 National Insurance contributions were no longer able to claim Employment Allowance. The value of the allowance increased to £3,000 in 2016 to 2017, increasing the cost of the relief.

The original forecast was also based on a 1% sample of employers’ end of year returns data from 2010 to 2011 and was on an accruals basis, whereas the outturn is measured using outturn receipts from HMRC systems. Since 2013 there have also been changes in the number of employers and wages.

Link to policy costing note

8.2 Patent Box

Description

A reduced corporation tax rate for profits from patents etc.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	910	-	-	-	-	-
Cost Estimate (£ million)	1,000	-	-	-	-	-
Difference (£ million)	90	-	-	-	-	-
Percentage difference	10%	-	-	-	-	-

Commentary on differences between outturn cost and original forecast The outturn cost deviated slightly in 2016 to 2017. New OECD rules concerning IP regimes were announced in October 2015, creating uncertainty meaning that businesses were put off claiming. This announcement was after the original forecast and therefore not factored into the first set of estimates. This effect would have lasted for some time after this data as companies considered whether or not to claim given the new rules.

Link to policy costing note

8.3 Relief on employer National Insurance Contributions for employees under 21

Description

A zero rate of Class 1 secondary NICs for employees under 21 up to the upper earnings limit.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	495	520	530	-	-	-
Cost Estimate (£ million)	570	600	610	-	-	-
Difference (£ million)	75	80	80	-	-	-
Percentage difference	15%	15%	15%	-	-	-

Commentary on differences between outturn cost and original forecast

The outturn cost is consistently higher than the forecast. The original forecast was based on a 1% sample of taxpayers’ P14 data from the Survey of Personal Incomes for 2010 to 2011. Outturn is estimated using a near-complete view of employees and their monthly wages from HMRC’s Real Time Information (RTI). The SPI is on an individual basis and the RTI is on an employment basis and individuals can have multiple employments. There is a higher number of employments being claimed for than the original estimates.

Since 2013 there have been changes in OBR determinants (economic projections) which would affect the costs, including the number of relevant employments and wages (see October 2021 Economic and fiscal outlook – supplementary economy tables).

Link to policy costing note

8.4 Marriage Allowance

Description

Provides a tax reduction to a person whose spouse or civil partner has elected for a reduced Personal Allowance.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	600	660	775	-	-	-
Cost Estimate (£ million)	400	460	490	-	-	-
Difference (£ million)	-200	-200	-285	-	-	-
Percentage difference	-33%	-30%	-37%	-	-	-

Commentary on differences between outturn cost and original forecast

Outturn costs have been consistently lower than originally forecast. The main driver of the differences is a lower than forecast take up of the allowance when introduced in 2015 to 2016. Though the number of claimants has since increased over time, the number of claimants is still below that originally forecast.

The Budget 2014 announcement to align the Marriage Allowance to 10% of the Personal Allowance also affects the comparability of the forecast to the outturn costs. The baseline tax system forecast from the original policy will also be different due to changes in economic determinants, indexation of the tax system and policy changes to the Personal Allowance.

Link to policy costing note

8.5 First Time Buyers Relief

Description

Relief from SDLT for first time buyers (as defined) of purchases of residential property for £500,000 or less, provided the purchaser intends to occupy the property as their only or main residence. The relief applies to purchases from 22 November 2017.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	-	125	560	585	610	640
Cost Estimate (£ million)	-	160	520	540	190	430
Difference (£ million)	-	35	-40	-45	-420	-210
Percentage difference	-	28%	-7%	-8%	-69%	-33%

Commentary on differences between outturn cost and original forecast

The outturn is relatively close to the forecast for 2017 to 2018 to 2019 to 2020. First-time buyers’ relief was announced and implemented at Autumn Budget 2017. The figure for 2017 to 2018 represents the estimated cost to HMRC for the remainder of the year and therefore has a smaller cost than the subsequent years.

The introduction of the SDLT holiday between July 2020 and September 2021 has meant that there was no longer a need to claim this relief for any properties between July 2020 and June 2021. The cost of the relief in 2020 to 2021 is therefore much lower than originally forecast.

From July 2021 to September 2021 there was no need to claim relief for any property valued under £250,000 as no tax would be payable. From 1st October the ability to claim this relief returned to the position prior to the SDLT holiday. The 2021 to 2022 forecast value is based on the methodology used to score this measure in the October 2021 Budget.

Link to policy costing note

8.6 High-End TV Tax Relief

Description

Television production companies can claim additional corporation tax relief on producing high-end TV programmes in the UK. Companies not making a profit may be able to surrender the loss and receive a tax credit.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	60	70	-	-	-	-
Cost Estimate (£ million)	170	195	-	-	-	-
Difference (£ million)	110	125	-	-	-	-
Percentage difference	183%	179%	-	-	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), in order to be more comparable to the forecast cost. The outturn cost is consistently much higher than originally forecast as take-up of the relief has been significantly higher than originally anticipated.

The minimum UK expenditure requirement was reduced from 25% to 10% in 2015, increasing the number of productions that are eligible to claim the relief. This made the relief open to more taxpayers, and could not have been factored into the original forecast. The high-end TV market has been expanding rapidly and the relatively low value of the British pound has made the UK more attractive to inward investors.

Link to policy costing note

8.7 Relief on National Insurance Contributions for apprentices under 25

Description

A zero rate of Class 1 secondary NICs for apprentices under 25 up to the upper earnings limit.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	105	110	120	125	-	-
Cost Estimate (£ million)	80	110	160	190	-	-
Difference (£ million)	-25	0	40	65	-	-
Percentage difference	-24%	0%	33%	52%	-	-

Commentary on differences between outturn cost and original forecast

The outturn cost is lower than originally forecasted in 2016 to 2017 and then higher in 2018 to 2019 and 2019 to 2020.

The original forecast was based on a 1% sample of employee jobs from the Annual Survey of Hours and Earnings for 2013 and BIS apprenticeship data. The outturn is estimated using a near-complete view of employees and their monthly wages from HMRC’s Real Time Information.

There is a higher number of apprenticeships being claimed for than the original number of individuals that were expected to be affected.

Since 2013 there have been changes in Office for Budget Responsibility (OBR) determinants (economic projections) which would affect costs, including the number of relevant employments and wages (see October 2021 Economic and fiscal outlook – supplementary economy tables).

Link to policy costing note

8.8 Video Games tax relief and Animation tax relief

Description

Video games: Video game development companies can claim additional corporation tax relief for UK or EEA expenditure incurred on producing video games. Companies not making a profit may be able to surrender the loss and receive a tax credit. Animation Tax Relief: Animation production companies can claim additional corporation tax relief on producing animated TV programmes in the UK. Companies not making a profit may be able to surrender the loss and receive a tax credit.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	55	55	-	-	-	-
Cost Estimate (£ million)	85	115	-	-	-	-
Difference (£ million)	30	60	-	-	-	-
Percentage difference	55%	109%	-	-	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), in order to be more comparable to the forecast cost. The outturn cost is much higher than originally forecast. Take-up of the video games tax relief has been significantly higher than originally anticipated. There has been strong growth in the video games industry and the relatively low value of the British pound has made the UK more attractive to inward investors.

Link to policy costing note

8.9 Theatre tax relief

Description

Theatre companies can claim additional corporation tax relief for UK or EEA expenditure incurred on producing theatrical productions. Companies not making a profit may be able to surrender the loss and receive a tax credit.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	20	20	20	-	-	-
Cost Estimate (£ million)	40	75	80	-	-	-
Difference (£ million)	20	55	60	-	-	-
Percentage difference	100%	275%	300%	-	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), in order to be more comparable to the forecast cost. The outturn cost is much higher than originally forecast. Take-up of the relief has been significantly higher than originally anticipated reflecting the relatively low value of the British pound encouraging inward investment, with theatre productions transferring from overseas.

Link to policy costing note

8.10 Television Tax Relief (Children’s)

Description

Television production companies can claim additional corporation tax relief on producing children’s programmes in the UK. Companies not making a profit may be able to surrender the loss and receive a tax credit.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	5	5	5	5	-	-
Cost Estimate (£ million)	5	15	20	25	-	-
Difference (£ million)	0	10	15	20	-	-
Percentage difference	0%	200%	300%	400%	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), in order to be more comparable to the forecast cost. The outturn cost has been consistently above forecast since 2017 to 2018. Take-up of the relief has been higher than originally anticipated.

Link to policy costing note

8.11 Orchestra Tax Relief

Description

Orchestra companies can claim additional corporation tax relief for UK or EEA expenditure incurred on producing orchestral concerts. Companies not making a profit may be able to surrender the loss and receive a tax credit.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	5	10	10	10	-	-
Cost Estimate (£ million)	0	5	15	20	-	-
Difference (£ million)	-5	-5	5	10	-	-
Percentage difference	-100%	-50%	50%	100%	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), in order to be more comparable to the forecast cost. The outturn cost was below forecast in 2016 to 2017 and 2017 to 2018 but above forecast in the following years. Take-up of the relief has been slightly higher than originally anticipated in later years.

Link to policy costing note

8.12 Museums and Galleries exhibition tax relief (MGETR)

Description

Charitable museum companies can claim additional corporation tax relief for UK or European Economic Area (EEA) expenditure incurred on producing exhibitions. Companies not making a profit may be able to surrender the loss and receive a payable tax credit.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	-	5	30	30	30	30
Cost Estimate (£ million)	-	0	5	15	15	10
Difference (£ million)	-	-5	-25	-15	-15	-20
Percentage difference	-	-100%	-83%	-50%	-50%	-67%

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), in order to be more comparable to the forecast cost. Outturn cost is consistently below forecast. Take-up of the relief has grown more slowly than originally anticipated.

Link to policy costing note

8.13 Social Investment Tax Relief (SITR) – Income tax relief

Description

Charitable museum companies can claim additional corporation tax relief for UK or European Economic Area (EEA) expenditure incurred on producing exhibitions. Companies not making a profit may be able to surrender the loss and receive a payable tax credit.

Year	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Forecast cost (£ million)	20	25	35	-	-	-
Cost Estimate (£ million)	Negligible	Negligible	Negligible	-	-	-
Difference (£ million)	-17	-22	-32	-	-	-
Percentage difference	-85%	-88%	-91%	-	-	-

Commentary on differences between outturn cost and original forecast

Estimates which round to £3 million or less are classed as ‘negligible’, so here the difference and percentage difference have been calculated assuming the cost estimate were £3 million to provide indicative differences. The income tax cost of the Social Investment Tax Relief (SITR) scheme has been consistently lower than originally forecast, reflecting much lower take up of the scheme than originally assumed.

Recently however, usage of the scheme has slightly increased. In 2018 to 2019, 75 social enterprises received investment through the Social Investment Tax Relief (SITR) scheme and £3.6 million of funds were raised, up from 25 social enterprises and £2.2 million in 2017 to 2018. The increase may be due to increased awareness of SITR, resulting from the government’s consultation on the scheme in Summer 2018 and external organisation campaigns to increase uptake.

Link to policy costing note

9. Annex A – Our approach to evaluating reliefs

9.1 Introduction

This document sets out HMRC’s approach to evaluating tax reliefs. The focus of this programme is the evaluation of non-structural reliefs. These are policy levers for governments to achieve certain social or economic objectives. This framework covers both internal or in-house and external evaluations which are commissioned to external contractors.

The government recognises the importance of transparency and HMRC are putting in place a more structured programme of internal evaluation, with the aim to start publishing this analysis, subject to Ministerial approval.

HMT and HMRC have identified 339 non-structural tax reliefs, some of which HMRC has evaluated. HMRC carries out evaluations externally, by commissioning an independent contractor to carry out the analysis, or in-house with its own analysts carrying out the evaluation. Recent HMRC evaluations are linked in the detailed analysis for the most significant non-structural reliefs section of the annual statistics

On 25 November, HMRC published the HMRC Evaluation Framework. This sets out the department’s approach to good quality monitoring and evaluation of policies, programmes and projects in line with government good practice. Our approach to evaluating reliefs details how HMRC plans to evaluate reliefs and should be read alongside the HMRC Evaluation Framework. It will also take account of the objectives of reliefs as published at Tax Administration and Maintenance day 2021.

This document sets out HMRC’s approach for evaluating tax reliefs. It establishes criteria for selecting which reliefs to evaluate for the internal and external components of the evaluation programme, what types of evaluation HMRC will undertake and information about publication.

9.2 Tax Relief Evaluation Criteria

Which reliefs to evaluate?

The HMRC Evaluation Framework lists the department’s evaluation criteria which will help determine what is in and out of scope to help bring transparency to our evaluation decisions.

In 2020, HMRC published tax relief evaluation criteria which build on HMRC’s overall evaluation criteria to apply specifically to non-structural tax reliefs, and support HMRC and HMT in evaluating tax reliefs in a more systematic way. They will also support HMT and HMRC in providing strategic, evidence-based policy advice to Ministers on tax reliefs. The Evaluation Criteria are as follows:

• the annual cost associated with a relief
• whether the relief has already been evaluated recently.
• whether the relief’s design has recently changed substantially.
• whether the relief’s data makes an evaluation methodologically feasible (this includes whether sufficient time has passed for a large enough body of data to be generated)
• whether an evaluation’s results would be usable and timely to feed into strategic decision-making

Who does the evaluation?

Another important decision is who should carry out the evaluation. In particular, should:

• the evaluations be carried out solely in-house by HMRC analysts
• or external organisations be brought in to work with HMRC on the evaluations

Decisions are made on a case-by-case basis, but in general, external organisations are brought in when:

• evaluations require new research with taxpayers
• external organisations can offer additional expertise and/or fill existing knowledge gaps

Evaluation objectives

The Magenta Book provides good-practice guidance for undertaking monitoring and evaluation. The Magenta Book describes evaluation as ‘a systematic assessment of the design, implementation and outcomes of an intervention’. There are several types of evaluations commonly used in Government evaluations.

Impact evaluations focus on the effect of the relief. Impacts can be conceptualised as being direct and indirect. The direct effect is the extent to which the relief has had the intended consequences in terms of behaviour in the population. In assessing the direct impacts of reliefs, the type of issues that might be addressed include:

• is the relief achieving its stated objective?
• which groups and sectors are affected from the relief?

The indirect effect is the extent to which the relief may be associated with behaviours other than those which are the immediate policy goal in the population. In assessing the indirect impacts of reliefs, the type of issue that might be addressed includes:

• what other behaviours could the relief incentivise?
• what is the impact of the relief on the wider economy?
• are there any other significant indirect impacts such as the impact on society or the environment?

Evaluations can also examine whether a relief is being implemented in the expected way and how it is perceived and experienced by the population. These questions are usually addressed via a process evaluation. The sorts of questions that may be addressed are set out below:

• to what extent are eligible taxpayers aware of the relief?
• why are eligible taxpayers making, or not making use, of the relief? How does this relate to the intended purpose of the relief?
• what changes could be made to the relief to make it more accessible to the target population?

Ideally, the evaluation methodology will help isolate the extent to which any observed direct or indirect effect is due to the relief itself rather than other factors or random chance.

Evaluations can address value for money. The government has committed to consider whether a robust methodology for assessing the value for money of different types of tax expenditure can be developed and what indicators could be used to increase understanding around the value of tax reliefs.

The Green Book describes the rationale, objectives, appraisal, monitoring, evaluation and feedback (ROAMEF) framework. This shows how evaluation can provide evidence to inform future change.

It is important to recognise that there are limitations to evaluations as described in this document. Tax reliefs are one part of the tax system and interact with wider public policy interventions such as regulation and public spending. Evaluating a relief in isolation from its wider context might therefore provide only a partial view of the overall situation. This will be more likely where objectives extend beyond simple behavioural responses.

Methods

There are several evaluation methods that can be used to evaluate the impact of a tax relief, and evaluation should always be proportionate. Evaluations can employ a mix of qualitative and quantitative methods to provide a rounded view of evaluated reliefs’ effectiveness. Evaluations can also be more focused and address particular questions, for example how a relief is working for claimants, or to measure impact on beneficiaries, and might use a single method to achieve results.

The choice of method should follow from the nature of the relief, objectives, and evaluation questions. The method should be proportionate to the scale and potential impact of the evaluation. For instance, reliefs which are more complex or have a higher level of public expenditure per annum might require a more comprehensive approach than reliefs which are less complex or have a lower annual expenditure.

The most suitable evaluation method will also be determined by the relief’s design and characteristics. Most non-structural tax reliefs are designed to incentivise a particular behaviour, and sometimes this behaviour could be difficult to observe or measure. These, combined with sample sizes and data time frame, will be an important determinant of which evaluation methods are most suitable, feasible and robust for any given tax relief evaluation.

Quantitative methods

Quantitative evaluations can be helpful in assessing the impact of a relief. A quantitative evaluation may examine and quantify both the direct and indirect impact of the relief. When assessing the direct impact, they will look at the impact of the relief on beneficiaries. These evaluations may attempt to isolate the impact from other factors that may have influenced the outcome of interest.

The causal impact of a tax relief is the difference between the outcome with the relief and the outcome in the absence of the relief. The outcome with the relief may be observed however the outcome in the absence of the relief is unobservable – the missing counterfactual problem. Sometimes it is important to construct this missing counterfactual to evaluate the impact.

A common approach to estimating the missing counterfactual is to identify a group of non-beneficiaries that share very similar characteristics with beneficiaries of a relief

Wherever it is possible to identify non-beneficiaries that are similar to beneficiaries, the impact of a relief can be estimated by comparing outcomes between the two groups. There are several quantitative (or econometric) methods that can be used to estimate impact such as difference in difference, regression discontinuity analysis and using instrumental variables. The quantitative method chosen will depend on specific circumstances such as data feasibility.

It may not always be possible to undertake econometric analysis to identify impacts, for example where there are very few claimants, where there is a lack of data or where it is not possible to find non-beneficiaries. In these cases, analysis will seek to understand which groups benefit from the relief using descriptive statistics.

A comprehensive overview of the range of quantitative methods that can be used to compare outcomes can be found in Annex A of the Magenta Book.

Qualitative methods

Where the resources are available and where it is appropriate for a given relief, we might want to complement the quantitative methods with qualitative analysis.

In order to understand perceptions and experience of reliefs of those who do and do not use them, analyses of data can be complemented with new data collection where information about attitudes, understanding and self-reported behaviours are collected. These are several methods available for collecting this information including:

• surveys – used to collect information from a random sample of respondents which can be generalised to the population
• interviews – used to collect richer data, such as detailed explanations of respondent behaviour and perceptions, and useful for exploring more sensitive topics.
• focus groups – used to identify how groups of respondents collectively discuss or experience a topic.
• observation/ethnographical approaches – this is particularly useful for collecting information about behaviours and reactions which research participants are less aware of and so would be unlikely to discuss in response to questions.

New data collection can be particularly useful to explore why an initiative is working in the way it is intended. However, data collection from respondents has some disadvantages, specifically in many cases research participants do not have a full understanding of why they behave the way they do and cannot accurately predict their responses. Respondents may also not disclose all relevant information when answering questions posed by a researcher.

Which, if any, methods are used to collect new data will depend on the evaluation questions. It is more likely to be appropriate to include these methods where reliefs are associated with higher levels of annual expenditure and where it is important to understand why businesses and individuals respond to the reliefs in the way they do.

Publication

One of the aims of the programme is to improve transparency around the effectiveness of tax reliefs. In their 2020 report, the PAC recommended that HMRC ‘ensure that the results of internal, as well as external, evaluations are published, and are easily accessible to Parliament and the public’.

HMRC’s internal analytical and evaluation activity takes a wide range of forms including analysis to feed into policy advice to ministers on specific options, proposals and decisions, which is necessarily confidential. HMRC will aim to publish analysis from the tax relief evaluation programme, including distributional analyses as well as assessments of impact, subject to Ministerial permission and the normal confidentiality arrangements for such advice.

10. Annex B – Revisions since October 2020 publication

Each year the estimates are updated for a number of reasons including:

• new outturn data received into the department from tax returns. For some taxes there can be a substantial delay in tax
• return data (or other data sources) being received due to the nature of that particular regime.
• improvements to methodology behind collecting information or forecasting the estimates.
• including the latest OBR economic forecasts in HMRC forecast models.

The revisions table below shows changes in the non-structural tax reliefs, which is largely due to incorporation of the latest available data. The following table includes commentary on any large changes in the figures since the previous publication. For our purposes large changes are defined as those greater than £500 million or 25 per cent.

Code	Tax type	Name	Reason for change
VAT - NS3	VAT	Construction and sale of new dwellings (includes refunds to DIY builders)	Updated for latest data
VAT - NS7	VAT	Food	Updated for latest data
VAT - NS8	VAT	International passenger transport (UK portion)	Updated methodology
VAT - S1	VAT	Betting and gaming and lottery duties	Updated for latest data
VAT - S5	VAT	Finance and insurance	Updated methodology
VAT - S6	VAT	Health Services	Updated methodology
IT - NS22	Income Tax	Rent-a-room relief	Updated for latest data
CPF - NS1	Carbon Price Floor	Exclusion from CPS rates for supplies to good quality CHP stations	Updated for latest data
CCL - NS1	Climate Change Levy	Exemption for supplies to good quality CHP stations	Updated for latest data
AL - S1	Aggregates Levy	Exemption for building (‘dimension’) stone	Updated for latest data
CCL - S4	Climate Change Levy	Supply of taxable commodities not for burning or consuming in the UK	Updated for latest data
AL - S3	Aggregates Levy	Coal, Lignite and Slate	Updated for latest data
IT - NS18	Income Tax	Personal Savings Allowance (PSA)	Updated methodology
IT - NS29, NSU - IT_CT26	Income Tax	War disablement benefits	Updated for latest data
IT - S1	Income Tax	£10 Christmas bonus for pensioners	Updated for latest data
IT - S4	Income Tax	Attendance allowance	Updated for latest data
IT - S17	Income Tax	Personal allowance	Updated for latest data
CT - NS1	Corporation Tax	Animation Tax Relief	Updated for latest data
CT - NS2	Corporation Tax	Children’s TV Tax Relief	Updated for latest data
CT - NS4	Corporation Tax	High-End TV Tax Relief	Updated for latest data
CT - NS12	Corporation Tax	Museums and Galleries exhibition tax relief (MGETR)	Updated for latest data
IT - NS28	Income Tax	Venture Capital Trusts (VCTs) - Income Tax Relief	We previously had an adjustment for a policy change in 2018 to 2019, which is now baselined in the outturn data. The adjustment was overestimated compared to the actual change observed in the outturn data.
IT_CT - S2	Income Tax and Corporation Tax	Capital allowances (includes Annual Investment Allowance, Ring-fence oil and gas trade, first-year capital allowances for plant and machinery)	Updated methodology
IHT - NS5, NSU - IHT22, NSU - IHT6	Inheritance Tax	Transfers between Spouses and Civil Partners	Updated for latest data
IHT - NS6	Inheritance Tax	Gifts to charities	Updated for latest data
IHT - NS8	Inheritance Tax	Quick succession relief	Updated for latest data
IHT - S2	Inheritance Tax	Double taxation relief	Updated for latest data
IHT - S4	Inheritance Tax	Nil rate band for chargeable transfers not exceeding the threshold for estates left on death	Updated for latest data
-	Inheritance Tax	Loss on sale of shares	Updated for latest data
CGT - NS1	Capital Gains Tax	Private residence relief	Updated methodology
IT - NS1	Income Tax & NICs	Approved Company Share Option Plans (CSOP) IT	Updated for latest data
CGT - S1	Capital Gains Tax	Deduction of trading losses against capital gains	Updated for latest data
IT_CT - NS3	Corporation Tax	Capital allowances: ring-fence oil business trades, first-year capital allowances for plant or machinery	Updated methodology
CT - S5	Corporation Tax	Ring-fenced oil and gas trades: tax relief for decommissioning expenditure	Updated methodology
IT - S5	Income Tax	British Government securities where owner not resident in UK	Updated for latest data
IT - NS21	Income Tax	Registered pension schemes	Previously missing data has now been incorporated, please see commentary on cost change over time section for this relief
NIC - NS4	NICs	Contributions to, and benefits from, registered pension schemes	Previously missing data has now been incorporated, please see commentary on cost change over time section for this relief