Official Statistics

6. Tax gaps: Other taxes

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’ sections of this chapter and the ‘Methodological annex’.

The tax gap estimates for ‘Other taxes’ is made up of:

• Stamp Duty Land Tax, estimated at 2.0% or £175 million

• Stamp Duty Reserve Tax, estimated at 1.0% or £40 million

• Inheritance Tax, estimated at 6.4% of theoretical tax liabilities or £375 million

• Landfill Tax, estimated at 17.1% or £125 million

• ‘Other taxes, levies and duties’ (Aggregates Levy, Air Passenger Duty, Climate Change Levy, Custom Duty, Digital Services Tax, Insurance Premium Tax, Soft Drinks Industry Levy), estimated at 5.1% or £650 million

Since the ‘Measuring tax gaps 2021 edition’ was published, ‘Other indirect taxes’ has been renamed to ‘Other taxes, levies and duties’.

The Inheritance Tax gap is based on an established bottom-up methodology and has a ‘medium’ uncertainty rating. All other estimates in this chapter have ‘high’ or ‘very high’ uncertainty ratings, predominantly due to their experimental methodologies.

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

Stamp Duty Land Tax

The 2020 to 2021 uncertainty rating assessment for the Stamp Duty Land Tax gap estimate is ‘high’.

The Stamp Duty Land Tax (SDLT) gap is estimated at 2% of theoretical tax liabilities in the tax year 2020 to 2021. This results in estimated losses of £175 million.

Table 6.1: Stamp Duty Land Tax gap (£ million) and proportion of theoretical tax liabilities

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Stamp Duty Land Tax gap	250	200	175	200	200	225	175
Theoretical tax liabilities	7,700	10,900	12,000	13,100	12,200	11,800	8,800
Proportion of theoretical tax liabilities	3.2%	1.9%	1.5%	1.5%	1.7%	1.9%	2.0%

Notes for Table 6.1

1. Figures for previous years have been revised.

2. Tax gap estimates are rounded to nearest £25 million and theoretical tax liabilities are rounded to nearest £100 million.

3. Figures for the proportion of theoretical tax liabilities are independently rounded to the nearest 0.1%.

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.

Methodology and data issues

The Stamp Duty Land Tax (SDLT) gap is estimated using a combination of management information and management assumptions. The estimate includes both commercial and residential property and land transactions. Further details can be found in the ‘Methodological annex’.

The 2020 to 2021 uncertainty rating for the SDLT gap estimate is ‘high’. This means that the tax base may not be fully captured and/or is misrepresented, the model is heavily assumption-based and some data gaps exist.

Areas of uncertainty include the scope of coverage of the higher rate of SDLT, the multipliers used to estimate the SDLT avoidance unknown to HMRC and assumptions on the reliefs improperly claimed.

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

It is not possible to produce a range of estimates for Stamp Duty Land Tax due to the experimental methodology applied.

Revisions

Revisions have been made to data on improperly claimed SDLT reliefs to align with published Tax Relief Statistics, leading to increases in the time series from 2015 to 2016 onwards.

Stamp Duty Reserve Tax

The 2020 to 2021 uncertainty rating assessment for the Stamp Duty Reserve Tax gap estimate is ‘very high’.

The Stamp Duty Reserve Tax (SDRT) gap is estimated at 1% of theoretical tax liabilities in the tax year 2020 to 2021. This results in estimated losses of £40 million.

Table 6.2: Stamp Duty Reserve Tax gap (£ million) and proportion of theoretical tax liabilities

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Stamp Duty Reserve Tax gap	30	30	40	40	40	40	40
Theoretical tax liabilities	3,500	3,400	3,800	3,600	3,700	3,700	3,700
Proportion of theoretical tax liabilities	1.0%	1.0%	1.0%	1.0%	1.0%	1.0%	1.0%

Notes for Table 6.2

1. Tax gap estimates are rounded to nearest £10 million and theoretical tax liabilities are rounded to nearest £100 million.

2. Figures for the proportion of theoretical tax liabilities are independently rounded to the nearest 0.1%.

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

Stamp Duty Reserve Tax is largely collected at source through the Certificateless Registry for Electronic Share Transfer (CREST) computer system, making the risk of non-compliance very low.

The tax gap for Stamp Duty Reserve Tax has been produced using the assumption that the tax gap is approximately 1% of receipts.

The 2020 to 2021 uncertainty rating for the Stamp Duty Reserve 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 simplistic experimental methodology and the application of a flat rate to account for non-compliance.

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

It is not possible to produce a range of estimates for Stamp Duty Reserve Tax due to the experimental methodology applied.

Inheritance Tax

The 2020 to 2021 uncertainty rating assessment for the Inheritance Tax gap estimate is ‘medium’.

The Inheritance Tax gap is estimated at 6.4% of theoretical tax liabilities in the tax year 2020 to 2021. This results in estimated losses of £375 million.

To account for the uncertainty involved in modelling the Inheritance Tax (IHT) gap, the central estimate is accompanied by upper and lower bounds. The upper bound losses are estimated at £450 million and the lower bound losses are estimated at £300 million. The true tax gap could be anywhere between these 2 estimates.

Table 6.3: Inheritance Tax gap (£ million) and proportion of theoretical tax liabilities

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Upper estimate	—	325	325	500	450	425	450
Central estimate	100	275	275	425	400	350	375
Lower estimate	—	250	225	375	350	300	300
Theoretical tax liabilities	3,400	4,900	5,100	5,600	5,800	5,500	5,700
Proportion of theoretical tax liabilities	3.0%	5.7%	5.3%	7.7%	6.9%	6.5%	6.4%

Notes for Table 6.3

1. Figures for previous years have been revised.

2. Tax gap estimates are rounded to nearest £25 million and theoretical tax liabilities are rounded to nearest £100 million.

3. Figures for the proportion of theoretical tax liabilities are independently rounded to the nearest 0.1%.

4. Upper and lower bounds are only available from the tax year 2013 to 2014.

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.

Methodology and data issues

The Inheritance Tax gap estimate applies an established statistical method to operational audit data, to estimate both tax payable at death and liabilities arising on transfers and charges on UK registered discretionary trusts. Further details can be found in the ‘Methodological annex’.

The 2020 to 2021 uncertainty rating for the Inheritance Tax gap estimate is ‘medium’. This means that the model has good coverage of the tax base and most forms of non-compliance. The Extreme Value methodology is the most suitable for the population but relies on highly sensitive assumptions and uses compliance data sensitive to year-on-year compliance activity.

Areas of uncertainty include the projections applied to account for years where it is necessary to forecast the expected compliance yield for enquiries that are still ongoing. Uncertainty also arises from the non-detection multiplier values applied to compliance results to account for non-compliance, which is missed or not fully investigated in an audit.

There is additional uncertainty for 2020 to 2021 due to lower case closures, however the overall rating is unchanged from the ‘Measuring tax gaps 2021 edition’.

Revisions

For the ‘Measuring tax gaps 2022 edition’, we have updated our estimates based on the most recent compliance data in each year of estimation. This has led to revisions across the series.

We have also updated our methodology for projecting the population with IHT due, which is not available for the most recent years due to lags in data availability. The projection method now uses total deaths in a year, as opposed to probate applications.

Petroleum Revenue Tax

The Petroleum Revenue Tax gap is not calculated from 2015 to 2016 as it was permanently zero rated from 1 January 2016.

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

Methodology and data issues

Petroleum Revenue Tax was zero-rated from 1 January 2016. An illustrative indicator of the tax gap from Petroleum Revenue Tax for previous years was produced using the expert opinion of Petroleum Revenue Tax specialists. Given the narrowly defined base of the tax (limited to oil-producing fields developed before April 1993) and the small number of businesses involved, a range of between 1% and 3% of theoretical tax liabilities was used to calculate an illustrative tax gap. This produced an estimate of less than £10 million in tax year 2014 to 2015.

Landfill Tax

The 2020 to 2021 uncertainty rating assessment for the Landfill Tax gap estimate is ‘high’.

The Landfill Tax gap is estimated at 17.1% of theoretical tax liabilities in the tax year 2020 to 2021. This results in estimated losses of £125 million.

Table 6.4: Landfill Tax gap (£ million) and proportion of theoretical tax liabilities

Tax gap (£ million)	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Landfill Tax gap	20	100	125	125	275	200	125
Theoretical tax liabilities	800	1,000	1,000	900	1,000	800	700
Proportion of theoretical tax liabilities	3.3%	10.4%	12.1%	13.6%	29.2%	23.0%	17.1%

Notes for Table 6.4

1. Figures for previous years have been revised.

2. Tax gap estimates are rounded to nearest £25 million or the nearest £10 million if they are below £50 million and theoretical tax liabilities are rounded to nearest £100 million.

3. Figures for the proportion of theoretical tax liabilities are independently rounded to the nearest 0.1%.

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.

Methodology and data issues

The Landfill Tax gap is based on an experimental methodology and includes 3 components: under-declared and misclassified waste at authorised waste sites, and detection of waste at unauthorised waste sites.

The level of Landfill Tax losses for authorised waste sites is measured by comparing the total Landfill Tax theoretical liability with actual Landfill Tax receipts. The difference between these amounts is the Landfill Tax gap.

The net theoretical Landfill Tax liability is produced using a combination of modelling, proxy indicators and tax professional expertise. It takes into account estimates for waste legitimately diverted away from landfill, and unexpected shortfalls in revenue.

Unauthorised waste sites, which were brought within scope of the tax gap from the tax year 2018 to 2019, are based on the estimated tonnage of waste detected at illegal waste sites from the Environment Agency.

Further details can be found in the ‘Methodological annex’.

The uncertainty rating for the Landfill Tax gap estimate is ‘high’. This means that the tax base may not be fully captured and represented. The estimate is based on a combination of modelling, proxy indicators and assumptions made in collaboration with HMRC’s operational experts.

Areas of uncertainty include the assumptions applied to the Environment Agency waste data to estimate the gap for unauthorised waste sites, and the misclassification assumption that 25% of the difference between expected and declared lower rated waste constitutes the tax base under consideration.

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

It is not possible to produce a range of estimates for Landfill Tax due to the experimental methodology applied.

Revisions

Updated unauthorised waste sites data from the Environment Agency has led to small revisions, marginally affecting the 2018 to 2019 and 2019 to 2020 tax gap estimates.

Other taxes, levies and duties

The 2020 to 2021 uncertainty rating assessment for the ‘Other taxes, levies and duties’ gap estimate is ‘very high’.

The ‘Other taxes, levies and duties’ gap (Aggregates Levy, Air Passenger Duty, Climate Change Levy, Custom Duty, Digital Service Tax, Insurance Premium Tax, Soft Drinks Industry Levy) is estimated at 5.1% of theoretical tax liabilities in the tax year 2020 to 2021. This results in estimated losses of £650 million.

Table 6.5: Other taxes, levies and duties gap (£ million) and proportion of total theoretical tax liabilities

Component	Baseline 2005-06	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Other taxes, levies and duties gap (Aggregates Levy, Air Passenger Duty, Climate Change Levy, Customs Duty, Digital Services Tax, Insurance Premium Tax, Soft Drinks Industry Levy)	525	750	800	800	825	875	650
Total theoretical tax liabilities	7,100	12,300	14,400	15,500	16,500	16,900	12,900
Proportion of total theoretical tax liabilities	7.5%	6.0%	5.6%	5.2%	4.9%	5.1%	5.1%

Notes for Table 6.5

1. Figures for previous years have been revised.

2. Tax gap estimates are rounded to nearest £25 million and total theoretical tax liabilities are rounded to nearest £100 million.

3. Figures for the proportion of total theoretical tax liabilities are independently rounded to the nearest 0.1%.

4. The Soft Drinks Industry Levy was introduced on 6 April 2018 and forms part of the ‘Other taxes, levies and duties’ estimates from 2018 to 2019.

5. The Digital Services Tax was introduced on 1 April 2020 and forms part of the ‘Other taxes, levies and duties’ estimates from 2020 to 2021.

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.

Methodology and data issues

Tax gaps for ‘Other taxes, levies and duties’ are formed by estimating the average percentage of the overall tax gap each year and multiplying this by total theoretical tax liabilities for the relevant ‘Other taxes, levies and duties’. This replaces the methodology used in previous editions of ‘Measuring tax gaps’, where the ‘Other taxes, levies and duties’ gap (previously named ‘Other indirect taxes’) was assumed to be synonymous with the Excise tax gap.

The average percentage revenue losses should not be considered estimates of the true percentage loss for each of the taxes listed in Table 6.5. Many of the taxes listed are very different from one another in nature, each being subject to different rules. The true percentage tax gaps are therefore likely to vary widely across the various taxes listed.

The 2020 to 2021 uncertainty rating for the other taxes, levies and duties 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 the listed tax populations and the use of a simple methodology that uses receipts data and tax gap estimates from other tax gap models.

There is less uncertainty due to an improvement in the methodology, which no longer assumes ‘Other taxes, levies and duties’ is synonymous with the Excise tax gap, but now applies more general assumptions consistent with the overall tax gap. The overall rating is unchanged from the ‘Measuring tax gaps 2021 edition’.

It is not possible to produce a range of estimates for other taxes, levies and duties, due to the experimental methodology applied.

Revisions

The methodology and assumptions used to estimate ‘Other taxes, levies and duties’ has been revised across the time series for the ’Measuring tax gaps 2022 edition’. The methodology no longer assumes ‘Other taxes, levies and duties’ is synonymous with the Excise tax gap, but now applies more general assumptions consistent with the overall tax gap. To note, ‘Other taxes, levies and duties’ was renamed from ‘Other indirect taxes’.

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)
• 4. Tax gaps: Income Tax, National Insurance contributions and Capital Gains Tax
• 5. Tax gaps: Corporation Tax
• 7. Tax gaps: Illustrative tax gap by behaviour

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