UK: HMRC publishes Tax Gap Analysis for 2022- 2023

The tax gap in the UK for the 2022 to 2023 tax year is estimated at 4.8% of total theoretical tax liabilities, equating to £39.8 billion. 

This figure indicates that HMRC successfully collected 95.2% of all taxes due.

BREAKDOWN OF THE TAX GAP

• Total Theoretical Tax Liabilities: 823.8 billion for 2022 to 2023.
• Headline Estimates:
  • The tax gap has steadily declined over the years, from 7.4% in 2005 to 2006 to 4.8% in 2022 to 2023.
  • The VAT gap decreased from 13.7% in 2005 to 2006 to 4.9% in 2022 to 2023.
  • Income Tax, National Insurance Contributions (NICs), and Capital Gains Tax gap fell from 4.5% in 2005 to 2006 to 3.0% in 2022 to 2023.
  • Corporation Tax gap increased from 11.4% in 2005 to 2006 to 13.9% in 2022 to 2023.
  • Excise duties gap reduced from 8.3% in 2005 to 2006 to 4.7% in 2022 to 2023.

KEY COMPONENTS

• Corporation Tax and Income Tax/NICs/Capital Gains Tax: both represent a 34% share of the total tax gap.
• VAT: Accounts for 20% of the total tax gap.
• Small Businesses: Constitute the largest segment, responsible for 60% of the tax gap.
• Wealthy Individuals and Other Individuals: Each contributes to 5% of the tax gap.

KEY TRENDS

• VAT Gap: The most significant reduction among the tax gap components, decreasing from 13.7% in 2005 to 2006 to 4.9% in 2022 to 2023.
• Corporation Tax Gap: Contrary to the general downward trend, the Corporation Tax gap increased from 11.4% in 2005 to 2006 to 13.9% in 2022 to 2023.
• Excise Duties Gap: Exhibited a smaller decline, dropping from 8.3% in 2005 to 2006 to 4.7% in 2022 to 2023.
• Income Tax, NICs, and Capital Gains Tax Gap: It remained relatively stable at around 4% throughout the period.
• Other Taxes: A consistent tax gap of around 4% was maintained.

LONG-TERM TRENDS

Since the 2005 to 2006 tax year, there has been a noticeable long-term reduction in the percentage tax gap. This decline is a result of the tax gap growing at a slower rate compared to the increase in theoretical tax liabilities.

From 2005 to 2006 to 2022 to 2023, the absolute value of the tax gap increased by 23%, from £32.4 billion to £39.8 billion. In contrast, total theoretical tax liabilities surged by 88%, from £437.6 billion to £823.8 billion.

RECENT DEVELOPMENTS

The tax gap estimates for 2021 to 2023 reflect higher absolute values due to significant year-on-year growth in theoretical tax liabilities. These grew approximately 15% each year: from £640.1 billion in 2020 to 2021 to £738.7 billion in 2021 to 2022, and reaching £823.8 billion in 2022 to 2023.

 SOURCE/RECOMMENDED READ:

• Tax gaps: Summary - GOV.UK (www.gov.uk)