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HM Revenue and Customs data has revealed the estimated tax gap for the 2020-21 tax year is 5.1 per cent – the second-lowest recorded percentage – and is unchanged from the previous year.
The annual Measuring Tax Gaps publication estimated the difference between the total amount of tax expected to be paid and the total amount of tax actually paid during the financial year. The majority of taxpayers pay the tax that is owed.
In monetary terms, the tax gap for the 2020-21 tax year is £32 billion. At 5.1 per cent, there has been no change in the percentage tax gap compared to the previous year, although the monetary value has fallen by £2 billion from £34 billion in the 2019-20 tax year.
The total tax due to be paid fell from £672 billion in 2019-20 to £635 billion in 2020-21 due to the economic impact of COVID-19.
The estimate for the 2020-21 tax gap is the best assessment based on the evidence available at this time. There is some uncertainty about the tax gap estimates for the first year of the pandemic and estimates could be subject to revisions in future years.
HMRC has published tax gap estimates since the 2005-06 tax year. There has been a long-term reduction in the overall tax gap from 7.5 per cent in 2005-06, to 5.1 per cent in the 2020-21 tax year. The reduction is a result of the government’s action to help taxpayers get their tax right first time, whilst bearing down on the small minority who are deliberately non-compliant.
Further findings for the 2020-21 tax gap publication showed that the tax gap for Income Tax, National Insurance contributions and Capital Gains Tax is 3.5 per cent (£12.7 billion), representing 39.5 per cent of the total tax gap by type of tax.
Additionally, the VAT gap showed a strong downward trend falling from 14.1 per cent in 2005-06 to 7.0 per cent in 2020-21 and the Corporation Tax gap reduced from 11.5 per cent in 2005-06, to 9.2 per cent in 2020-21, reaching a low of 6.5 per cent in 2011-12, remaining broadly stable since 2014-15.
At 48 per cent (£15.6 billion), small businesses represent the largest proportion of the tax gap by customer group, followed by criminals at 16 per cent (£5.2 billion), while individuals account for 8 per cent (£2.5 billion) of the overall tax gap and, at 5 per cent (£1.5 billion), wealthy individuals have the smallest tax gap by customer group.
The main reasons for tax gap by behaviour are a failure to take reasonable care (19 per cent), criminal attacks (16 per cent), non-payment (15 per cent) and evasion (15 per cent).