Official Statistics

4. Tax gaps: Income Tax, National Insurance contributions and Capital Gains Tax

Updated 23 June 2022

Main findings

Uncertainty is inherent in all tax gap estimates.  We assign an uncertainty rating to tax gap components on a scale using the ratings ‘very low’, ‘low’, ‘medium’, ‘high’ to ‘very high’. Details are available in the ‘Methodology and data issues’ section of this chapter and the ‘Methodological annex’.

In the tax year 2020 to 2021, the total estimated tax gap for Income Tax, National Insurance contributions (NICs) and Capital Gains Tax is 3.4% of total theoretical liabilities which equates to £12.7 billion.

Of this £12.7 billion, £7.4 billion is attributable to Income Tax Self Assessment taxpayers (including large partnerships), equivalent to 12.4% of theoretical Income Tax Self Assessment liabilities. This covers individuals who have self-employed or partnership income, or other untaxed income, such as rental income or income from savings.

In contrast, the Income Tax (PAYE), National Insurance contributions and Capital Gains Tax gap attributable to employers, operating Income Tax (PAYE) and NICs for their employees, is 0.9% of total theoretical liabilities, which equates to £2.9 billion.

Of the remaining tax gap for Income Tax, NICs and Capital Gains Tax, the hidden economy contributed £2.0 billion and marketed avoidance schemes sold primarily to individuals contributed £0.4 billion. This is shown in the chart below.

We estimate the Self Assessment tax gap attributable to wealthy taxpayers separately and disaggregate the results. Taxpayers in Self Assessment are defined as wealthy if their income is greater than £200,000 or where they have assets over £2 million.

In 2020 to 2021, the tax gap for wealthy taxpayers is 4.0% of the total Self Assessment wealthy theoretical liabilities, which equates to £1.2 billion.

The full data series can be seen in the online tables.

Components of Income Tax, National Insurance contributions and Capital Gains Tax

Tax component of Income Tax, NICs and Capital Gains Tax	Tax gap
Self Assessment	£7.4bn
Employers	£2.9bn
Hidden economy	£2.0bn
Avoidance	£0.4bn

The percentage tax gap for tax types may differ between the ‘Tax gaps: Summary’ chapter and the separate published tax gap breakdowns. In the ‘Tax gaps: Summary’ chapter, the percentage gap is calculated using published receipts and here we calculate the percentage tax gap using liabilities. We use receipts in the ‘Tax gaps: Summary’ chapter, as liability figures are not available at the required level across all types of tax.

Individuals and partnerships in Self Assessment

The 2020 to 2021 uncertainty rating assessment for the Self Assessment business (sole traders and small partnerships) and non-business tax gap estimates is ‘medium’. For large partnerships it is ‘very high’.

The 2020 to 2021 Self Assessment tax gap is estimated at 12.4% of total Self Assessment theoretical tax liabilities, equivalent to £7.4 billion.

The tax gap from business taxpayers (sole traders and small partnerships) contributed most of the Self Assessment tax gap estimate at £4.6 billion, with non-business taxpayers accounting for £1.7 billion and large partnerships accounting for £1.1 billion in 2020 to 2021.

The results from the Self Assessment random enquiry programme (REP) show that the proportion of all Self Assessment taxpayers who under-declared their tax liabilities decreased from 29% in the tax year 2005 to 2006 to 22% in the tax year 2017 to 2018.

Wealthy taxpayers have complex tax affairs and have tax liabilities which cut across our 3 Self Assessment tax gap components: business, non-business and large partnerships. We have therefore looked at the contribution that wealthy taxpayers make to the total Self Assessment tax gap, to produce the estimate of the wealthy taxpayers in Self Assessment tax gap. Specifically, the wealthy Self Assessment taxpayers are estimated to have a tax gap of 4.0% of liabilities in 2020 to 2021 equivalent to £1.2 billion.

The estimate for Self Assessment in the ‘Measuring tax gaps 2022 edition’ is projected over 3 years, an extra year compared to previous publications. This is due to increased REP uncertainties from different ways of working cases during the pandemic, to allow time for more 2018 to 2019 REP cases to close and to complete assurance and validation of the results.

Self Assessment: Impact of COVID-19 on tax gap estimates

The estimates for 2020 to 2021 are subject to more uncertainty than usual due to COVID-19. Previous tax gap estimates for years up to 2019 to 2020 were not materially affected by the COVID-19 pandemic. The estimate for 2020 to 2021 is the best assessment based on the evidence available at this time. Our established tax gap methodology has been used to produce the 2020 to 2021 Self Assessment tax gap estimate. However, we have had to make two specific adjustments to take account of the impact of COVID-19 in some of the input data used in the estimation process to maintain consistency in our time series:

• compliance yield relating to Income Tax Self Assessment: the established methodology for this element of the tax gap estimates the value of non-compliance in the Self Assessment liabilities generated each year and subtracts the amount of compliance yield recovered by HMRC from Income Tax Self Assessment in the relevant year. This is a simplified method that does not attempt to assign compliance yield to the year in which the tax liability arose, and it works well when compliance yield from year to year is relatively constant. Compliance yield in 2020 to 2021 relating to Income Tax Self Assessment was significantly lower than in previous years. Rather than assigning the full value of the decline in compliance yield to the 2020 to 2021 tax gap estimate, we have analysed which years’ liabilities were affected by the compliance enquiries closed in 2020 to 2021 and assigned the impact of the drop in compliance yield to the relevant years. This preserves consistency in the time series, reduces the headline tax gap in 2020 to 2021 by £0.7 billion or 0.1 percentage points and increases the tax gap for earlier years by the same amount in total, with the largest adjustments/increases being £0.2 billion in 2016 to 2017 and £0.1 billion in 2017 to 2018 compared with the established methodology. The adjustment to compliance yield has only been applied to Self Assessment as there is not a material difference in compliance yield trends for other taxes. For further information on compliance yield and how it relates to the tax gap, see Chapter C of the ‘Methodological annex’

• non-payment: the established tax gap methodology counts non-payment from revenue losses when HMRC formally ceases collection activity and debt is remitted or written off. During 2020 to 2021 HMRC halted all new insolvency proceedings except for a small number of cases in connection with serious fraud, organised crime and promotors of avoidance cases, reducing amounts of debt written off or remitted. This meant that the established input for the non-payment element of the tax gap was significantly lower than in previous years. We judge that this decline is the impact of operational decisions around the insolvency process rather than a real change in the underlying behaviours driving non-payment. We have therefore made a specific adjustment which assumes that losses from write-offs and remissions from those cases where insolvency was paused during the pandemic will return to historic trends. This adjustment means that the 2020 to 2021 tax gap estimate is £0.1 billion higher than it would have been under our established methodology, which does not impact the headline rate

These changes are only applied to Self Assessment where there is a material difference on the estimates, and our underlying methodology remains the same. We will continue to use the best available data next year and assess requirements for any further adjustments. We will review the methodology in next year’s publication as we progress to measure tax gaps in years that are not significantly impacted by COVID-19.

Other changes to data are:

• random enquiry programme (REP) data: our established methodology uses random enquiry programmes (REPs) to establish the levels of non-compliance in respect of each year’s liabilities. There is a lag between tax liabilities arising and completion of REPs. Normally, this means that we need to project levels of non-compliance for the final 2 years of our published tax gap series. The latest Self Assessment small business REP data available is from 2017 to 2018, and these elements of the tax gap are projected for 3 years due to increased REP uncertainties from different ways of working cases during the pandemic, to allow time for more 2018 to 2019 REP cases to close and to complete assurance and validation of the results

Employers

The 2020 to 2021 uncertainty rating assessment for the employer compliance small, mid-sized and large business tax gap estimates are ‘low’, ‘medium’ and ‘very high’ respectively.

Employers are required to make returns under the PAYE regulations to account for Income Tax and NICs for their employees. The employer compliance tax gap refers to Income Tax, NICs, and Student Loan Repayments collected through PAYE due on earnings and other income from employment. The scope of these figures also includes tax due on occupational pensions taxed through PAYE.

The 2020 to 2021 employer compliance tax gap estimate of 0.9% of employer Pay As You Earn (PAYE) total theoretical liabilities is equivalent to £2.9 billion.

The tax gap from small business employers is estimated at 1.2% of small business PAYE tax liabilities (£0.8 billion) in 2020 to 2021. The tax gap from mid-sized business employers is estimated at 0.5% of mid-sized business PAYE tax liabilities (£0.4 billion) in 2020 to 2021. The tax gap from large business employers is estimated at 1.1% of large employer PAYE liabilities (£1.6 billion) in 2020 to 2021.

Avoidance

The 2020 to 2021 uncertainty rating assessment for the Income Tax, National Insurance contributions and Capital Gains Tax avoidance tax gap estimate is ‘very high’.

The avoidance tax gap related to marketed avoidance schemes sold primarily to individuals and made up of unpaid Income Tax, National Insurance contributions (NICs) and Capital Gains Tax for the tax year 2020 to 2021 is estimated at £0.4 billion.

Hidden economy

The 2020 to 2021 uncertainty rating assessment for the direct tax hidden economy tax gap estimate for moonlighters and ghosts are ‘high’ and ‘very high’ respectively.

The tax gap on personal income taxes due to the hidden economy is estimated at £2.0 billion in 2020 to 2021.

This consists of individuals who we refer to as ‘ghosts’ (whose entire income is unknown to HMRC), which accounted for £1.1 billion and those we refer to as ‘moonlighters’ (who have a source of income which is declared to HMRC, such as through PAYE and at least one other source of income not declared to HMRC), which accounted for £0.9 billion.

Results and tables

Self Assessment and employers

The overall tax gap for Income Tax, NICs and Capital Gains Tax is estimated in several different ways. The estimates for individuals and small partnerships who complete Self Assessment returns and small business employers are both from the results of random enquiry programmes (REPs) and operational enquiry data.

The tax gap for large partnerships and large business employers are illustrative tax gaps, produced by assuming the tax at risk will be a similar proportion of liabilities to all other Self Assessment taxpayers or small business employers. The mid-sized employers tax gap estimates use the statistical technique of Extreme Values (EV) and operational enquiry data specific to these populations. For more information, see the ‘Methodology and data issues’ section.

Figures 4.1 and 4.2 show that the total Income Tax, NICs and Capital Gains Tax gap estimate as a proportion of total liabilities has stayed broadly stable from the tax years 2005 to 2006, to 2020 to 2021, peaking in tax year 2013 to 2014 at 5.3%. The tax gap as a proportion of liabilities was larger for those in Self Assessment than for employers and also showed more variation from year to year. The trends for all employers are more stable across all the years shown.

Figure 4.1: Self Assessment individuals and small partnerships and Self Assessment large partnerships tax gaps, as a proportion of theoretical tax liabilities

Notes for Figure 4.1

1. Figures for previous years have been revised.

2. ‘IT’, ‘NICs’ and ‘CGT’ refer to ‘Income Tax’, ‘National Insurance contributions’ and ‘Capital Gains Tax’.

Figure 4.2: Small business employers, mid-sized business employers and large employers tax gaps as a proportion of theoretical tax liabilities

Notes for Figure 4.2

1. Figures for previous years have been revised.

2. ‘IT’, ‘NICs’ and ‘CGT’ refer to ‘Income Tax’, ‘National Insurance contributions’ and ‘Capital Gains Tax’.

Self Assessment individuals and small partnerships

Tax gap estimates from incorrect returns come from the Self Assessment REP, operational enquiry data, data on compliance yield and data on non-payment. The latest Self Assessment REP data available is for the tax year 2017 to 2018, with estimates for subsequent years projected forward by applying a constant percentage gross tax gap to the Self Assessment liabilities for the relevant tax year. In previous ‘Measuring tax gaps’ publications, we usually projected the latest 2 years. For the ‘Measuring tax gaps 2022 edition’, however, we are projecting the latest 3 years due to increased REP uncertainties from different ways of working cases during the pandemic, to allow time for more 2018 to 2019 REP cases to close and to complete assurance and validation of the results.

Table 4.1 shows the estimated tax gap and under-declared liabilities due to incorrect returns for Self Assessment taxpayers (excluding large partnerships) between 2005 to 2006 and 2020 to 2021. The Self Assessment tax gap as a proportion of liabilities stayed around 15% and 16% in the years prior to the tax year 2010 to 2011, before rising to a peak of 24% in 2014 to 2015. The tax gap for Self Assessment taxpayers then fell to between 13% and 16% from 2015 to 2016 onwards. Non-payment has remained stable at £0.2 billion.

Table 4.1: Self Assessment tax gap (excluding large partnerships) and under-declared liabilities due to incorrect returns (£ billion)

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Under-declared liabilities due to incorrect returns - upper estimate	7.0	11.8	10.2	11.0	11.3	12.0	14.0
Under-declared liabilities due to incorrect returns - central estimate	4.6	6.3	5.4	5.9	6.1	6.4	7.5
Under-declared liabilities due to incorrect returns - lower estimate	1.9	3.2	2.8	3.0	3.1	3.3	3.9
Compliance yield	0.7	0.9	0.9	1.2	1.1	1.3	1.4
Non-payment	0.2	0.2	0.2	0.2	0.2	0.2	0.2
Total tax gap - upper estimate	7.6	11.0	9.5	9.9	10.1	10.2	12.1
Total tax gap - central estimate	4.1	5.5	4.7	4.9	5.2	5.3	6.3
Total tax gap - lower estimate	1.9	2.5	2.1	2.0	2.0	2.0	2.3
Total theoretical tax liabilities	25.4	35.1	33.0	35.9	38.0	39.7	45.4
Proportion of liabilities	16%	16%	14%	14%	14%	13%	14%

Notes for table 4.1

1. Figures are rounded to the nearest £0.1 billion or nearest 1%. As a result, components may not appear to sum.

2. Figures for previous years have been revised.

3. Tax gap estimates from 2018 to 2019 are projected based on Self Assessment liabilities figures for the respective years and will be revised when operational data becomes available.

4. Compliance yield for the years prior to and including 2019 to 2020 is based on period of settlement of enquiry. Compliance yield for 2020 to 2021 is based on recorded yield for 2019 to 2020.

5. The non-payment figure for 2020 to 2021 is a projection based on the non-payment figure for 2019 to 2020.

6. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

7. The full data series can be seen in the online tables.

Table 4.2 shows estimated tax gaps for Self Assessment taxpayers (excluding large partnerships) split by business and non-business taxpayers between 2005 to 2006 and 2020 to 2021. Business taxpayers accounted for the majority of the total tax gap, ranging between 69% and 88% of the total share over the whole period.

Table 4.2: Self Assessment tax gap (excluding large partnerships) by type of taxpayer (£ billion)

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Business taxpayers	3.6	3.8	3.5	3.7	3.6	3.7	4.6
Non-business taxpayers	0.5	1.7	1.2	1.2	1.6	1.5	1.7
Total tax gap	4.1	5.5	4.7	4.9	5.2	5.3	6.3

Notes for table 4.2

1. Figures rounded to the nearest £0.1 billion. As a result, components may not appear to sum.

2. Figures for previous years have been revised.

3. Tax gap estimates from 2018 to 2019 are projected based on Self Assessment liabilities figures for the respective years and will be revised when operational data becomes available.

4. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

5. The full data series can be seen in the online tables.

Table 4.3 shows the estimated proportion of incorrect Self Assessment returns leading to under-declaration of liabilities for business and non-business taxpayers. This has decreased from 29% to 22% between 2005 to 2006 and 2017 to 2018.

Table 4.3: Proportion of Self Assessment (SA) returns with under-declared tax liability

Proportion of SA returns with under-declaration	Baseline 2005-06	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18
Proportion of SA returns	29%	25%	26%	27%	24%	25%	22%
of which, size of under-declaration between £1 to £500	12%	9%	8%	9%	7%	8%	8%
of which, size of under-declaration between £501 to £1,000	5%	3%	4%	4%	3%	4%	3%
of which, size of under-declaration over £1,000	12%	14%	14%	14%	14%	14%	11%

Notes for table 4.3

1. Figures rounded to the nearest 1%. As a result, components may not appear to sum.

2. Figures for previous years have been revised.

3. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

4. The full data series can be seen in the online tables.

The proportion of under-declarations shown in Table 4.3 can be further split by business and non-business taxpayers.

Table 4.4 shows the estimated proportion of incorrect Self Assessment returns leading to under-declaration of liabilities between 2005 to 2006 and 2017 to 2018 for business taxpayers only. The proportion of incorrect Self Assessment returns from business taxpayers fell from 50% to 23% between 2005 to 2006 and 2017 to 2018. The reduction is seen most clearly for lower amounts of under-declaration.

Table 4.4: For business taxpayers, the proportion of Self Assessment (SA) returns with under-declared tax liability

Proportion of SA returns with under-declaration	Baseline 2005-06	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18
Proportion of SA returns	50%	32%	29%	30%	25%	26%	23%
of which, size of under-declaration between £1 to £500	18%	10%	7%	8%	5%	6%	6%
of which, size of under-declaration between £501 to £1,000	9%	4%	4%	4%	3%	4%	2%
of which, size of under-declaration over £1,000	23%	18%	17%	18%	18%	16%	14%

Notes for table 4.4

1. Figures rounded to the nearest 1%. As a result, components may not appear to sum.

2. Figures for previous years have been revised.

3. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

4. The full data series can be seen in the online tables.

Table 4.5 shows that between 2005 to 2006 and 2017 to 2018 the proportion of non-business taxpayers with under-declared liabilities was lower for non-business taxpayers than for business taxpayers (shown in Table 4.4). However, the proportion of incorrect Self Assessment returns from non-business taxpayers rose from 15% to 22% between 2005 to 2006 and 2017 to 2018.

Table 4.5: For non-business taxpayers, the proportion of Self Assessment (SA) returns with under-declared tax liability

Proportion of SA returns with under-declaration	Baseline 2005-06	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18
Proportion of SA returns	15%	20%	24%	25%	23%	23%	22%
of which, size of under-declaration between £1 to £500	8%	8%	10%	10%	10%	9%	10%
of which, size of under-declaration between £501 to £1,000	3%	2%	3%	4%	3%	3%	4%
of which, size of under-declaration over £1,000	3%	10%	11%	10%	10%	12%	8%

Notes for table 4.5

1. Figures rounded to the nearest 1%. As a result, components may not appear to sum.

2. Figures for previous years have been revised.

3. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

4. The full data series can be seen in the online tables.

Large partnerships in Self Assessment

Large partnerships are not covered by the Self Assessment REP so an illustrative tax gap is produced by assuming that the total tax at risk from under-declared liabilities from large partnerships will represent the same proportion of liabilities as all other Self Assessment taxpayers, as shown by the results of the Self Assessment REP.

Table 4.6 shows the tax gap for large partnerships in Self Assessment was £1.1 billion in 2020 to 2021. As a proportion of liabilities, the Self Assessment large partnerships tax gap fluctuated between 8% and 15%, reflecting the trend in the Self Assessment tax gap as a proportion of liabilities. The tax gap for Self Assessment large partnerships in 2020 to 2021 of 8% was lower than the peak reached in 2014 to 2015 of 15%.

Table 4.6: Tax gap for large partnerships in Self Assessment (£ billion)

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Under-declared liabilities due to incorrect returns - upper estimate	0.6	1.6	1.4	1.5	1.6	1.6	1.8
Under-declared liabilities due to incorrect returns - central estimate	0.6	1.3	1.1	1.3	1.3	1.3	1.5
Under-declared liabilities due to incorrect returns - lower estimate	0.6	1.1	0.9	1.1	1.1	1.1	1.3
Compliance yield	0.2	0.4	0.2	0.4	0.4	0.4	0.5
Non-payment	0.0	0.1	0.1	0.1	0.1	0.1	0.1
Total tax gap - upper estimate	0.6	1.3	1.2	1.2	1.4	1.3	1.5
Total tax gap - central estimate	0.5	1.0	1.0	0.9	1.0	1.0	1.1
Total tax gap - lower estimate	0.5	0.8	0.8	0.7	1.0	0.9	1.1
Total theoretical tax liabilities	5.2	11.0	11.0	12.0	12.7	12.8	14.4
Proportion of liabilities	9%	9%	9%	8%	8%	8%	8%

Notes for table 4.6

1. Figures are rounded to the nearest £0.1 billion or nearest 1%. As a result, components may not appear to sum.

2. Figures for previous years have been revised.

3. Tax gap estimates from 2018 to 2019 are projected based on Self Assessment liabilities figures for the respective years and will be revised when operational data becomes available.

4. Compliance yield for the years prior to and including 2019 to 2020 is based on period of settlement of enquiry. Compliance yield for 2020 to 2021 is based on recorded yield for 2019 to 2020.

5. The non-payment figure for 2020 to 2021 is a projection based on the non-payment figure for 2019 to 2020.

6. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

7. The full data series can be seen in the online tables.

Wealthy taxpayers in Self Assessment

We estimate the Self Assessment tax gap attributable to wealthy taxpayers separately and disaggregate the results. Wealthy taxpayers have complex tax affairs and tax liabilities which cut across our 3 Self Assessment tax gap components: business, non-business and large partnerships. We have therefore looked at the contribution which wealthy taxpayers make to the total Self Assessment tax gap, to produce the estimate of the wealthy taxpayers Self Assessment tax gap.

For years up to 2015 to 2016, the Self Assessment tax gap estimates for wealthy taxpayers are illustrative, based on the total Self Assessment tax gap, due to data not being in the required format for earlier years. Our first non-illustrative estimate of the tax gap for wealthy taxpayers in Self Assessment is for the tax year 2015 to 2016. The latest Self Assessment REP and operational enquiry data available is for 2017 to 2018, with estimates for subsequent years projected forward by applying a constant percentage gross tax gap to the liabilities for the relevant tax year.

There are no upper and lower estimates specific to the wealthy taxpayers Self Assessment tax gap, but the wealthy component of the Self Assessment tax gap is included in calculating the upper and lower estimates for the overall Self Assessment tax gap.

Table 4.7 shows the wealthy taxpayers Self Assessment tax gap is estimated at 4% of total theoretical Self Assessment liabilities in 2020 to 2021, which is £1.2 billion.

Table 4.7: Tax gap for wealthy taxpayers in Self Assessment (£ billion)

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Wealthy taxpayers	0.7	1.2	1.2	1.1	1.2	1.2	1.2
Proportion of liabilities	4.0%	4.8%	5.2%	4.1%	4.1%	4.0%	4.0%

Notes for table 4.7

1. Figures rounded to the nearest £0.1 billion and 0.1%.

2. Figures for previous years have been revised.

3. Tax gap estimates from 2018 to 2019 are projected based on Self Assessment liabilities figures for the respective years and will be revised when operational data becomes available.

4. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

5. The full data series can be seen in the online tables.

Employers (employer compliance) — small

The employer compliance tax gap from small business employers is estimated to be 1.2% of small business PAYE tax liabilities in 2020 to 2021. This estimate is produced using data collected from the small business employer compliance REP, data on compliance yield and data on non-payment.

Table 4.8 shows the estimated small business employer compliance tax gap, compliance yield and non-payment between 2005 to 2006 and 2020 to 2021. The tax gap from small business employers as a percentage of small business PAYE liabilities peaked in the tax year 2015 to 2016 at 2.4%. From 2017 to 2018 onwards the tax gap has remained around 1% of liabilities.

Table 4.8: Estimated employer compliance tax gap for small business employers (£ billion)

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Under-declared liabilities due to incorrect returns - upper estimate	1.2	3.9	4.2	2.5	2.0	0.8	1.3
Under-declared liabilities due to incorrect returns - central estimate	0.8	1.5	1.1	0.7	0.7	0.3	0.6
Under-declared liabilities due to incorrect returns - lower estimate	0.6	0.5	0.2	0.1	0.2	0.1	0.2
Compliance yield	0.3	0.1	0.2	0.1	0.1	0.1	0.0
Non-payment	0.5	0.3	0.4	0.4	0.5	0.4	0.3
Total tax gap - upper estimate	1.4	4.1	4.5	2.8	2.3	1.1	1.5
Total tax gap - central estimate	1.1	1.8	1.4	1.0	1.0	0.6	0.8
Total tax gap - lower estimate	0.8	0.8	0.5	0.4	0.6	0.4	0.5
Total theoretical tax liabilities	57.0	72.8	75.5	81.0	87.2	79.8	70.4
Proportion of liabilities	1.9%	2.4%	1.9%	1.2%	1.2%	0.8%	1.2%

Notes for table 4.8

1. Figures rounded to the nearest £0.1 billion and 0.1%. As a result, components may not appear to sum. Year relates to when the enquiry was opened, as employer compliance queries are not made in relation to an annual return. Values exclude the tax gap relating to avoidance; this figure is available at an aggregate level for Income Tax, NICs and Capital Gains Tax.

2. Figures for previous years have been revised.

3. Compliance yield is recorded by period of settlement of enquiry.

4. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

5. The full data series can be seen in the online tables.

Table 4.9 shows the estimated proportion of small business employers failing to fully meet their obligations in operating PAYE. This shows a downward trend from 2005 to 2006 to 2020 to 2021, falling from 29% in 2005 to 2006 to 6% in 2020 to 2021.

Table 4.9: Proportion of small employers not meeting their PAYE scheme obligations

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Proportion of PAYE schemes	29%	15%	14%	10%	10%	8%	6%
of which, size of under-declaration between £1 and £1,000	16%	3%	2%	1%	3%	2%	0%
of which, size of under-declaration over £1,000	12%	12%	12%	9%	7%	6%	5%

Notes for table 4.9

1. Figures rounded to the nearest 1%. As a result, components may not appear to sum. Year relates to when the enquiry was opened, as employer compliance enquiries are not made in relation to an annual return.

2. Figures for previous years have been revised.

3. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

4. The full data series can be seen in the online tables.

Employers (employer compliance) – mid-sized

The employer compliance tax gap from mid-sized business employers is estimated at 0.5% of mid-sized business PAYE tax liabilities in 2020 to 2021.

This estimate is based on operational enquiry data relating to accounting periods up to and including 2020 to 2021.

Table 4.10 shows the estimated employer compliance tax gap for mid-sized employers. The net tax gap has fallen from a peak of £0.9 billion (1.6%) in 2013 to 2014, to a value of £0.4 billion (0.5%) in 2020 to 2021. This reflects the introduction of Real Time Information in 2014 to 2015 and a corresponding fall in the levels of non-compliance. Employer compliance total theoretical tax liabilities for mid-sized businesses have increased significantly since 2005 to 2006, which means that the tax gap as a percentage of liabilities in 2020 to 2021 is 0.5%, down from 1.4%.

For the ‘Measuring tax gaps 2021 edition’ lower and upper bounds have been added to the mid-sized business employers estimates for 2014 to 2015 onwards. These bounds show a slight increase in uncertainty for tax years 2019 to 2020 and 2020 to 2021.

Table 4.10: Estimated employer compliance tax gap for mid-sized business employers (£ billion)

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Under-declared liabilities due to incorrect returns - upper estimate	—	0.3	0.3	0.3	0.3	0.4	0.4
Under-declared liabilities due to incorrect returns - central estimate	0.5	0.2	0.1	0.1	0.2	0.2	0.2
Under-declared liabilities due to incorrect returns - lower estimate	—	0.1	0.1	0.1	0.1	0.0	0.0
Compliance yield	0.1	0.0	0.0	0.0	0.0	0.0	0.0
Non-payment	0.2	0.3	0.4	0.4	0.5	0.4	0.3
Total tax gap - upper estimate	—	0.6	0.7	0.6	0.8	0.7	0.7
Total tax gap - central estimate	0.6	0.4	0.5	0.5	0.6	0.5	0.4
Total tax gap - lower estimate	—	0.4	0.5	0.4	0.5	0.4	0.3
Total theoretical tax liabilities	44.7	56.4	60.7	59.4	65.4	74.5	86.5
Proportion of liabilities	1.4%	0.8%	0.9%	0.8%	0.9%	0.7%	0.5%

Notes for table 4.10

1. Figures rounded to the nearest £0.1 billion. As a result, components may not appear to sum. Values exclude the tax gap relating to avoidance; this figure is available at an aggregate level for Income Tax, NICs and Capital Gains Tax.

2. Figures for previous years have been revised.

3. Estimates include both risks that are being worked (open) and risks that have been settled (closed).

4. Compliance yield is the total yield from closed risks, plus the estimated compliance yield from open risks. Compliance yield in this table relates to a specific accounting period and cannot therefore be compared to reported compliance yield.

5. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

6. The full data series can be seen in the online tables.

Employers (employer compliance) – large business

The employer compliance tax gap from large business employers is estimated at 1.1% of large employer PAYE liabilities in 2020 to 2021. This is an illustrative estimate based on historical trends in small business employers.

Table 4.11 shows the illustrative employer compliance tax gap for large employers. The net gap has been constant at 1.5% for years prior to 2014 to 2015. Following the introduction of Real Time Information, the gap fell to 1.1%.

Upper and lower bounds have not been produced for the employer compliance tax gap for large employers, as this estimate is illustrative and is calculated based on a fixed % gap and liabilities.

Table 4.11: Estimated employer compliance tax gap for large business employers (£ billion)

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Gross tax gap	1.4	1.4	1.5	1.4	1.3	1.4	1.5
Compliance yield	0.1	0.3	0.3	0.1	0.1	0.1	0.1
Non-payment	0.1	0.2	0.3	0.3	0.3	0.3	0.2
Net tax gap	1.4	1.4	1.5	1.5	1.6	1.6	1.6
Total theoretical tax liabilities	100.4	127.1	135.9	142.6	144.9	148.7	150.8
Tax gap as a proportion of liabilities	1.5%	1.1%	1.1%	1.1%	1.1%	1.1%	1.1%

Notes for table 4.11

1. Figures rounded to the nearest £0.1 billion. As a result, components may not appear to sum.

2. Compliance yield is by period of settlement enquiry.

3. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

4. The full data series can be seen in the online tables.

Avoidance

Avoidance involves bending the rules of the tax system to try to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter, but not the spirit, of the law.

The avoidance tax gap related to marketed avoidance schemes sold primarily to individuals and made up of unpaid Income Tax, National Insurance contributions (NICs) and Capital Gains Tax for 2020 to 2021, is estimated to be £0.4 billion.

The 2020 to 2021 estimate has been projected based on the 2019 to 2020 estimate. The nature of the avoidance methodology means that upper and lower bound estimates are not currently available for these estimates.

Table 4.12: Estimated avoidance tax gap related to marketed avoidance schemes sold primarily to individuals and made up of unpaid Income Tax, National Insurance contributions (NICs) and Capital Gains Tax (£ billion)

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
IT, NICs and CGT avoidance	1.5	0.8	0.6	0.8	0.5	0.4	0.4

Notes for table 4.12

1. Figures rounded to the nearest £0.1 billion.

2. Figures for previous years have been revised.

3. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

4. The full data series can be seen in the online tables.

Hidden economy

The tax gap on personal income taxes due to the hidden economy is estimated at £2.0 billion in 2020 to 2021.

Table 4.13 shows the time series for the direct tax hidden economy estimates. This tax gap consists of 2 elements: ‘ghosts’ and ‘moonlighters’. ‘Ghosts’ are individuals whose entire income is unknown to HMRC, while ‘moonlighters’ are individuals who are employees and pay tax on the earnings from their main job through PAYE, but have other undeclared sources of income.

Table 4.13: Estimated Income Tax (IT), NICs and Capital Gains Tax gap relating to the hidden economy (£ billion)

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Ghosts	0.5	0.8	0.9	1.0	1.0	1.1	1.1
Moonlighters	0.8	0.9	0.9	0.9	0.9	0.9	0.9
Hidden economy	1.3	1.7	1.8	1.9	1.9	2.0	2.0

Notes for table 4.13

1. Figures rounded to the nearest £0.1 billion. As a result, components may not appear to sum.

2. Figures for previous years have been revised.

3. The baseline year 2005 to 2006 has been included to illustrate the long-term trend.

4. The full data series can be seen in the online tables.

Methodology and data issues

Overview

Most of the Income Tax, NICs and Capital Gains Tax components of the tax gap are estimated using HMRC data sources, such as random enquiries, surveys, administrative and operational data. These methods are based on HMRC compliance activity, which can, in some cases, take years to complete. This means the data used to produce the tax gap estimates typically apply to periods before the tax year 2020 to 2021. This has the following consequences:

• to produce a tax gap for years where we do not have random enquiry data, the latest available estimate is projected forward
  • the projections are made by keeping the percentage gross tax gap constant and using actual tax liabilities, non-payment and compliance yield from the projected tax year for the relevant tax
  • using tax liabilities ensures that our projections reflect changes to tax rates and taxable income, and projects a stable rate of underlying compliance
  • more detail on the timings for the REPs can be found in the timings section of Chapter H in the ‘Methodological annex’
  • the Self Assessment non-payment and compliance yield figures have been adjusted in the ‘Measuring tax gaps 2022 edition’, due to HMRC supporting customers and the economy throughout COVID-19
• when using operational data, it is necessary to forecast the expected compliance yield for enquiries that are still ongoing
  • differences between the forecast yield and actual yield may lead to revised tax gap estimates in subsequent publications, and as such, estimates are provisional until every risk is closed
  • the tax gap for more recent years is likely to be subject to larger revisions because a higher proportion of the compliance yield is estimated
• the unearned income portion of the hidden economy tax gap is projected forward based on changes in tax receipts, taking into account policy changes
  • this allows the projections to take into account changes in both tax rates and the tax base over time – for example, increases in the personal allowance reduce the potential tax revenue from hidden economy activities, all else being equal
  • see the ‘Methodological annex’ for more details on the projection of the unearned income tax gap
• estimates for earlier years have been revised, as they now include additional data from compliance checks that have been completed since last year’s publication

The methods used differ between taxes, according to the type of non-compliance and the type of taxpayer involved. The main methods used to estimate tax gaps for direct taxes are random enquiries, data matching and risk registers. Where robust methodologies have not yet been developed, an illustrative tax gap estimate is given based on the opinion of our operational experts, or calculated using the nearest equivalent measured gap. Further information on the methodology used to calculate tax gap estimates from random enquiries can be found in the ‘Methodological annex’ on GOV.UK.

Table 4.14: Summary of methods by tax gap estimates

Tax gap	Population section	Methods used
Employer compliance (IT and NICs on employment income and tax on occupational pensions)	Small business employers	Random enquiries
Employer compliance (IT and NICs on employment income and tax on occupational pensions)	Mid-sized business employers	Statistical approach (operational data)
Employer compliance (IT and NICs on employment income and tax on occupational pensions)	Large business employers	Illustrative estimate
Self Assessment (IT, NICs and CGT)	Business taxpayers consisting of self-employed taxpayers and partnerships with up to 4 partners who receive notices to file a Self Assessment return	Random enquiries and operational enquiry data
Self Assessment (IT, NICs and CGT)	Non-business taxpayers consisting of individuals without business income and trusts who receive notices to file a Self Assessment return	Random enquiries and operational enquiry data
Self Assessment (IT, NICs and CGT)	Partnerships with 5 or more partners who receive notices to file a Self Assessment return	Illustrative estimate
Self Assessment (IT, NICs and CGT)	Wealthy taxpayers who have an income greater than £200,000 or assets greater than £2,000,000 who receive notices to file a Self Assessment return	Random enquiries and operational enquiry data
Avoidance (IT, NICs and CGT)	Individuals, trusts, partnerships and employers	Avoidance management information
Hidden economy	Ghosts	‘Hidden Economy Quantitative Survey’ data
Hidden economy	Moonlighters	Data matching and ‘Hidden Economy Quantitative Survey’ data

Note for table 4.14

1. ‘IT’, ‘NICs’ and ‘CGT’ refer to ‘Income Tax’, ‘National Insurance contributions’ and ‘Capital Gains Tax’.

Random enquiries

This is the process taken to calculate tax gap estimates using random enquiries:

• Step 1: HMRC audits a random sample of taxpayers

• Step 2: the under-declared tax identified is scaled up to the taxpayer population

• Step 3: the results are used to estimate the tax gap

REPs involve samples of taxpayers being selected at random and their returns subjected to full enquiries by HMRC officers. The results of these programmes show the proportion of taxpayers under-reporting their tax liabilities and the corresponding amount of additional tax due. These results can be used to produce an estimate for the amount of under-declared tax liability for the whole population, as the enquiries are randomly selected and form a representative sample. A proportion of the under-declared liabilities will be recovered as a result of our compliance activity, which is then subtracted from the estimate of under-declared liabilities. Losses through non-payment are also added to obtain final tax gap estimates.

The REPs will not identify all incorrect returns or the full scale of tax gaps, especially where independent information from third parties is not available to verify the data supplied by the taxpayer. This means that tax gap estimates produced through random enquiries will under-estimate the full extent of the tax gap. We tackle this by using a range of ‘multipliers’ to adjust for non-detection of under-reported income. Further information on the multipliers used to calculate tax gap estimates from random enquiries can be found in the sources of error section of Chapter H in the ‘Methodological annex’ and HMRC’s working paper ‘Non-detection multipliers for measuring tax gaps’ on GOV.UK.

Individual estimates

Non-payment

The tax gap estimates include a measure of associated losses from non-payment of tax by the relevant type of taxpayer, if appropriate. Non-payment estimates for direct taxes come from our financial statements and represent amounts written off or remitted; that is, debts that are not collectable. Direct tax debts that are paid at a later date do not form part of the direct tax gap, although payment will be deferred. Due to timing effects, the amounts written off during a tax year will not all relate to liabilities arising during that year.

In the ‘Measuring tax gaps 2022 edition’, we have made a specific adjustment for Self Assessment which assumes that losses from write-offs and remissions from those cases where insolvency was paused during the pandemic will return to historic trends. This adjustment means that the 2020 to 2021 Self Assessment tax gap estimate is £0.1 billion higher than it would have been under our established methodology. For further information see the ‘Self Assessment: Impact of COVID-19 on tax gap estimates’ section.

Small business employers

From ‘Measuring tax gaps 2021 edition’, we introduced a specific non-detection multiplier using the ‘Delphi’ approach to estimate the small business employer compliance gap. This is applied to account for non-detected non-compliance in all tax years. Further details about the Delphi approach and non-detection multipliers can be found in HMRC’s working paper ‘Non-detection multipliers for measuring tax gaps’.

The 2020 to 2021 uncertainty rating for the employer compliance small business tax gap estimate is ‘Low’.

This means that the model captures the majority of the tax base and its population, the stratified REP methodology is robust, and the random enquiry data is reliable and suitable for purpose.

Areas of uncertainty include it being necessary to forecast the expected compliance yield for enquiries that are still ongoing. Additional uncertainty arises from the non-compliance which is missed or not fully investigated in an audit. This uncertainty is mitigated by the inclusion of a non-detection multiplier.

This uncertainty rating is unchanged from the ‘Measuring tax gaps 2021 edition’.

Large and mid-sized employers

Since the ‘Measuring tax gaps 2020 edition’ was published, the method for estimating the mid-sized employer compliance gap has used a statistical approach, which relies on operational enquiry data relating to accounting periods up to and including 2020 to 2021. Before 2020 the estimate was illustrative, so the time series in 2020 was revised for years 2005 to 2006 up to 2014 to 2015 in line with the change.

The employer compliance tax gap for large employers is an illustrative estimate based on historical trends in the small business tax gap.

The 2020 to 2021 uncertainty rating for the employer compliance tax gap estimate for large business employers is ‘very high’.

This means that the model may not capture the appropriate tax base and population, the experimental methodology is heavily assumption-based and data may not be representative.

Areas of uncertainty include the assumption that employer compliance large businesses behave in the same way as employer compliance small businesses. The experimental estimate uses data from employer compliance small business, assuming the tax at risk in large business will represent a similar proportion of liabilities to employer compliance small business. This uncertainty rating is unchanged from the ‘Measuring tax gaps 2021 edition’.

The 2020 to 2021 uncertainty rating for the employer compliance tax gap estimate for mid-sized employers is ‘medium’.

This means that the model captures the tax base and most forms of non-compliance, and the Extreme Value methodology is suitable for the population but is based on complex calculations. It uses reliable data although this is sensitive to year-on-year compliance activity and risking approaches.

Areas of uncertainty arise from the projections applied to estimate the most recent tax year estimates and the sensitivity to changes in compliance activity, which the compliance yield data is based on. This uncertainty rating is unchanged from the ‘Measuring tax gaps 2021 edition’.

Self Assessment

To estimate the Self Assessment tax gap, we draw on a combination of random enquiry data and operational enquiry data. The operational enquiry data has only been available since the tax year 2015 to 2016, so all years before this are projected based on the total Self Assessment liabilities, to maintain the integrity of the time series. Specific non-detection multipliers have been worked out using the ‘Delphi’ approach for the operational enquiry data. Further details about the Delphi approach and non-detection multipliers can be found in HMRC’s working paper ‘Non-detection multipliers for measuring tax gaps’.

The uncertainty rating for the Self Assessment business and non-business tax gap estimate is ‘medium’.

The Self Assessment business and non-business model captures the majority of the tax base and its population, the stratified REP methodology is robust, and the random enquiry data is reliable and suitable for purpose.

Areas of uncertainty include the projections applied to account for years where we do not have random enquiry data and the requirement to forecast the expected compliance yield for enquiries that are still ongoing. Additional uncertainty arises from the non-detection multiplier values applied to enquiry results, to account for non-compliance which is not identified in the audits.

The rating has been increased to ‘medium’ for the ‘Measuring tax gaps 2022 edition’, as the estimate is being projected for an additional year and because of the increased uncertainty relating to the impacts of COVID-19.

Large partnerships

Partnerships with 5 or more partners are not covered by the Self Assessment REP, which means an alternative methodology is required to estimate the associated tax gap. An illustrative estimate is produced by assuming that the total tax at risk from under-declared liabilities will represent the same proportion of liabilities as all other Self Assessment taxpayers, as shown by the results of the Self Assessment REP.

The 2020 to 2021 uncertainty rating for the Self Assessment large partnerships tax gap estimate is ‘very high’.

This means that the model may not capture the appropriate tax base and population, the experimental methodology is heavily assumption-based and data may not be representative.

Areas of uncertainty include the omission of non-compliance specific to large partnerships and the assumption that large partnerships behave in the same way as Self Assessment business and non-business populations. The experimental estimate for large partnerships has been produced by assuming that the total tax at risk from under-declared liabilities will represent the same proportion of liabilities as all other Self Assessment taxpayers.

Wealthy

Self Assessment taxpayers are defined as wealthy if their income is greater than £200,000 or they have assets in excess of £2 million. The wealthy in the Self Assessment tax gap is composed of the wealthy components of Self Assessment business, Self Assessment non-business and Self Assessment large partnerships.

The wealthy in the Self Assessment tax gap is disaggregated from the Self Assessment gap by selecting the relevant REP and operational enquiry data for the population identified as wealthy according to the above definition.

Avoidance

The 2020 to 2021 uncertainty rating for the avoidance tax gap related to marketed avoidance schemes sold primarily to individuals and made up of unpaid Income Tax, National Insurance contributions (NICs) and Capital Gains Tax estimate is ‘very high’.

This means that the tax base may not be fully captured, mis-represented and some overlap may exist with other models. The model is heavily assumption-based and some data gaps exist.

Areas of uncertainty include the potential for omission of avoiders from the HMRC avoidance database and the lack of granular data to inform the model assumptions. Other areas of uncertainty include the non-detection of avoidance schemes and the estimates of tax under consideration. This rating has increased from ‘high’ in the ‘Measuring tax gaps 2021 edition’ to ‘very high’ for this year’s edition, due to some assumptions being more outdated than last year.

This is the process taken to reach tax gap estimates for avoidance:

• Step 1: HMRC maintains a register of identified avoidance schemes

• Step 2: the risks are then allocated across years

• Step 3: compliance yield is then subtracted to calculate the tax gap

The estimate for 2020 to 2021 is calculated using HMRC’s avoidance management information system, which contains information about identified avoidance schemes used by individuals, trusts, partnerships and employers. This is achieved by subtracting an annual estimate of the compliance yield from the annual estimated tax under consideration relating to avoidance.

The ‘Methodological annex’ is available on GOV.UK

Hidden economy

The direct tax hidden economy estimate is composed of 2 elements:

• ghosts

• moonlighters

These estimates use data from the report on the hidden economy in Great Britain. In ‘Measuring tax gaps 2022 edition’ this is often referred to as the ‘Hidden Economy Quantitative Survey’ (HEQS).

Ghosts

‘Ghosts’ are individuals who receive income from employment or self-employment but are not known to HMRC because they and/or their employers fail to declare their earnings. Information on ghosts is (by definition) not recorded by HMRC, so any estimates of their number or the potential loss of tax are only approximate.

The 2020 to 2021 uncertainty rating for the direct tax hidden economy tax gap estimate for ghosts is ‘very high’.

This means that the tax base may not be fully captured. For the tax base we do cover, the model uses the HMRC ‘Hidden Economy Quantitative Survey’ (HEQS) data from 2014 to 2015 and estimates a lower limit derived from the ONS ‘Family Resource Survey’ (FRS) data.

Areas of uncertainty include the behavioural changes to the hidden economy since the HEQS in 2014 to 2015 and the potential underestimate of the gap, due to the limited coverage of the hidden economy ghost population. This rating has increased from ‘high’ in the ‘Measuring tax gaps 2021 edition’ to ‘very high’ for this year’s edition, due to some assumptions being more outdated than last year.

HMRC commissioned the HEQS into participation in the hidden economy, which made it possible to estimate the prevalence of ghosts in the overall population, as well as their average income. This has been used to estimate the tax liabilities that would be due if these activities were being conducted in the legitimate economy.

A time series for the ghosts tax gap estimate was created by using a data source that tracks the changes in taxation over time and the movement in the incomes of low earners, as the ‘Hidden Economy Quantitative Survey’ found most participants in the hidden economy to be on low incomes. The ‘Family Resource Survey’ has been used to track the incomes of low earners over time. The FRS is a government sponsored study which provides information about households in the United Kingdom. Please see the ‘Methodological annex’ for more details.

These estimates will continue to be revised as new data and methodology improvements are implemented.

Moonlighters

‘Moonlighters’ are individuals who pay tax on the earnings from their main job through PAYE, but who fail to declare earnings from additional sources of income.

The 2020 to 2021 uncertainty rating for the direct tax hidden economy tax gap estimate for moonlighters’ tax gap is ‘high’.

This means that although it is tricky to capture the tax base for this population, the ‘Hidden Economy Quantitative Survey’ (HEQS) model used is reliable and uses independent Office of Budget Responsibility (OBR) and Office of National Statistics (ONS) data.

Areas of uncertainty include the low coverage of moonlighter income sources and the lack of independent moonlighter data sources. This rating has increased from ‘medium’ in the ‘Measuring tax gaps 2021 edition’ to ‘high’ for this year’s edition, due to some assumptions being more outdated than last year.

For earned income (income from a second job or additional income from self employment), the estimates have been produced using the data from the HEQS HMRC commissioned into participation in the hidden economy. This has also made it possible to estimate the prevalence and average income of moonlighters earning income from at least one undeclared source. This has been used to estimate the tax liabilities that would be due if these activities were being conducted in the legitimate economy.

As with ghosts, a time series for the moonlighters tax gap estimate was created by using a data source that tracks the changes in taxation over time and the movement in the incomes of low earners, as the HEQS found most participants in the hidden economy to be on low incomes. The ‘Family Resource Survey’ (FRS) has been used to track the incomes of low earners over time. The FRS is a government sponsored study, which provides information about households in the United Kingdom. Please see the ‘Methodological annex’ for more details.

These estimates will continue to be revised as new data and methodology improvements are implemented.

For unearned income, estimates have been produced by matching data supplied by third parties to a sample of our PAYE records. From this, it has been possible to produce a tax gap estimate relating to some sources of income and capital gains for individuals who are taxed through PAYE, but do not file Self Assessment returns. Several sources of income were investigated, such as income from lettings, bank and building society interest and capital gains. Where a difference was found between income in the third party data and the tax records, the tax that should have been paid on this income, if any, was then calculated and identified as the tax gap. The results from the sample were then grossed to produce an estimate of the overall tax gap for all employees and pensioners taxed through PAYE who are outside Self Assessment.

This data matching exercise was performed using data from the tax year 2014 to 2015 to derive an estimate. A time series was then established using an index based on receipts changes and the FRS data. See the ‘Methodological annex’ for more details.

The limitations associated with the results of this exercise relate to the coverage of the third-party data used to establish evidence of additional undeclared income. Not all potential sources of income could be investigated due to availability of data, and the investigation of some sources was limited by the completeness of the information. As a result, the estimate resulting from the data matching exercise should be interpreted as a lower limit for the true scale of the tax gap relating to this group of taxpayers.

The ‘Methodological annex’ is available on GOV.UK

Revisions

Individuals and partnerships in Self Assessment

The Self Assessment tax gap (excluding large partnerships) has been revised downwards by £0.1 billion in the tax year 2012 to 2013, upwards by £0.2 billion in tax year 2013 to 2014, upwards by £0.4 billion in tax year 2015 to 2016 and downwards by £0.2 billion in the tax year 2016 to 2017. There was a decrease to the Self Assessment tax gap of £0.5 billion in the tax year 2017 to 2018, a decrease of £0.8 billion in the tax year 2018 to 2019 and a decrease of £0.7 billion in the tax year 2019 to 2020. There were no revisions made to the Self Assessment tax gap in the tax years prior to 2011 to 2012 or in the tax year 2014 to 2015. The revisions are driven by the following factors:

• settlement of long-running cases for which we previously had to forecast the outcome

• updating the yield forecasts for open cases

• the yield value from settled cases being amended due to new information being received on those enquiries

• adjusting compliance yield for tax years preceding 2020 to 2021 to allocate the drop in yield settled in 2020 to 2021, in line with the year of liability

• better alignment with changes in the Self Assessment populations for earlier years

• reclassifying some cases as being within the population of interest

• expanding the coverage of our random enquiry programmes, reducing the use of operational enquiry data in producing the estimate

Figures 4.3 and 4.4 show changes to the estimates of the tax gaps of both Self Assessment individuals and small partnerships, and Self Assessment large partnerships.

Figure 4.3: Revisions to Self Assessment individuals and small partnerships tax gaps since ‘Measuring tax gaps 2021 edition’

Notes for Figure 4.3

1. MTG stands for ‘Measuring tax gaps’.

2. Figures for previous years have been revised.

Figure 4.4: Revisions to the Self Assessment large partnerships tax gap since ‘Measuring tax gaps 2021 edition’

Notes for Figure 4.4

1. MTG stands for ‘Measuring tax gaps’.

2. Figures for previous years have been revised.

Figures 4.3 and 4.4 show the revisions to the Self Assessment individuals and small partnerships and the Self Assessment large partnerships net tax gaps since the publication of ‘Measuring tax gaps 2021’. The tax gap published in ‘Measuring tax gaps 2022’ for Self Assessment individuals and small partnerships is higher for 2013 to 2014 and 2015 to 2016 and lower for 2012 to 2013, 2016 to 2017, 2017 to 2018, 2018 to 2019 and 2019 to 2020. Revisions to the tax gap for Self Assessment large partnerships follows a similar pattern.

Since the ‘Measuring tax gaps 2020 edition’ we have included operational enquiry data to ensure full coverage of the Self Assessment population. The operational enquiry data is only available from 2015 to 2016, so all years prior to this are projected.

Wealthy

As a subset of the overall Self Assessment tax gap, small revisions are made to the wealthy tax gap estimate in line with the revisions to the overall Self Assessment tax gap estimate.

Employers

Some small revisions were made to the employers tax gap estimate due to improvements to the method in how we distribute liabilities between different customer groups. Revisions to the employers tax gaps are shown in Figures 4.5 to 4.7.

Small business employers

Tax gap estimates for small business employer compliance figures have been revised since publication of the ‘Measuring tax gaps 2021 edition’, for the following reasons:

• cases in the random enquiry programme for which we previously forecast the yield have now closed – this has revised the tax gap estimate for 2018 to 2019 upward

• replacing previously projected data for 2019 to 2020 with actual data

Large and mid-sized employers

For large employers in ‘Measuring tax gaps 2022 edition’ there are no revisions, as we are continuing to use an illustrative measure based on trends in small business.

For mid-sized employers in ‘Measuring tax gaps 2022 edition’ there are small revisions in the time series. The larger revision in 2019 to 2020 is due to the estimate being projected last year and replaced with the actual estimate for this year’s publication.

Figure 4.5: Revisions to large employers net tax gap between the ‘Measuring tax gaps’ 2021 and 2022 editions

Notes for Figure 4.5

1. MTG stands for ‘Measuring tax gaps’.

2. Figures for previous years have been revised.

Figure 4.6: Revisions to mid-size employers net tax gap between the ‘Measuring tax gaps’ 2021 and 2022 editions

Notes for Figure 4.6

1. MTG stands for ‘Measuring tax gaps’.

2. Figures for previous years have been revised.

3. The full data series can be seen in the online tables.

Figure 4.7: Revisions to small business employers net tax gap between the ‘Measuring tax gaps’ 2021 and 2022 editions

Notes for Figure 4.7

1. MTG stands for ‘Measuring tax gaps’.

2. Figures for previous years have been revised.

Figures 4.5 to 4.7 show the revisions to the small business employers, mid-sized business employers and large business employers since publication of the ‘Measuring tax gaps 2021 edition’. There is little change to the large business or mid-size employers’ tax gaps. There have been no substantial changes to the small business employers tax gap, except for an upwards revision in the tax gap estimate for the year 2018 to 2019, and a slight downward revision in the tax gap estimate for 2019 to 2020.

Avoidance

Between publications we see some revisions to estimates associated with changes in the data, due to cases closing for higher or lower yields than was estimated as part of the methodology. This has resulted in a revision downwards from 2011 to 2012 onwards, compared to the ‘Measuring tax gaps 2021 edition’. The 2020 to 2021 estimate has been projected based on the 2019 to 2020 estimate.

Hidden economy

The hidden economy tax gap estimates for Income Tax, NICs and Capital Gains Tax has been revised downwards since the ‘Measuring tax gaps 2021 edition’ estimates for ‘moonlighters’ and ‘ghosts’ in 2019 to 2020.

Go directly to other pages in this report:

• Tax gaps: Main findings
• 1. Tax gaps: Summary
• 2. Tax gaps: VAT
• 3. Tax gaps: Excise (including alcohol, tobacco and oils)
• 5. Tax gaps: Corporation Tax
• 6. Tax gaps: Other taxes
• 7. Tax gaps: Illustrative tax gap by behaviour

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