Official Statistics

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

Updated 20 June 2024

Summary

The Income Tax, National Insurance contributions and Capital Gains Tax gap is estimated using a combination of established and experimental methodologies. It is made up of 4 main components:

• the Self Assessment tax gap is estimated using random enquiry programme (REP) data and a combination of established and experimental methodologies and is formed from 3 components: the business Self Assessment tax gap, the non-business Self Assessment tax gap and the large partnerships Self Assessment tax gap

• the PAYE employer compliance tax gap is estimated using REP data, statistical and experimental methodologies and is formed from 3 components: small, mid-sized and large businesses

• the hidden economy tax gap is estimated using a combination of established bottom-up methodologies, including management information and survey data, and is formed from two components: moonlighters (individuals who are employees in their legitimate occupation but do not declare earnings from other sources of income) and ghosts (individuals who do not declare any of their income to HMRC, be it earned or unearned)

• the avoidance tax gap related to marketed avoidance schemes sold primarily to individuals is estimated using an experimental bottom-up method

To evaluate the uncertainty of the Income Tax, National Insurance contributions and Capital Gains Tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’.

• the Self Assessment tax gap: the business and non-business tax gaps estimates have ‘medium’ uncertainty, the large partnerships tax gap has ‘very high’ uncertainty

• the PAYE employer compliance tax gap: the small businesses and mid-sized businesses PAYE employer compliance tax gaps have ‘medium’ uncertainty and the large businesses PAYE employer compliance tax gap has ‘very high’ uncertainty

• the hidden economy tax gap: the moonlighters estimate has ‘high’ uncertainty and the ghosts estimate has ‘very high’ uncertainty

• the avoidance tax gap related to marketed avoidance schemes has ‘very high’ uncertainty

Main findings

Figure 4.1 shows the Income Tax, National Insurance contributions and Capital Gains Tax gap time-series in absolute terms and as a percentage of theoretical Income Tax, National Insurance contributions and Capital Gains Tax liability.

The tax gap for Income Tax, National Insurance contributions and Capital Gains Tax is 3.0% of the theoretical Income Tax, National Insurance contributions and Capital Gains Tax liability, or £13.7 billion in absolute terms, in the 2022 to 2023 tax year.

There has been a long-term reduction in the Income Tax, National Insurance contributions and Capital Gains Tax gap from 4.5% in 2005 to 2006 to 3.0% in 2022 to 2023. It peaked at 5.4% in 2013 to 2014 and fell to 3.0% in 2022 to 2023. Since 2016 to 2017, the Income Tax, National Insurance contributions and Capital Gains Tax gap has been more stable between 3.0% and 3.6%.

Components of the Income Tax, National Insurance contributions and Capital Gains Tax gap are projected in line with liabilities from earlier years where sufficient actual data is not yet available. For most components, projections are based on the 2021 to 2022 estimate, however the avoidance tax gap projection is based on the 2019 to 2020 estimate.

Figure 4.1: Income Tax, National Insurance contributions and Capital Gains Tax gap by value and as a percentage of theoretical tax liabilities, 2005 to 2006 up to 2022 to 2023

Notes for Figure 4.1

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

Figure 4.2 shows the overall, PAYE employer compliance and Self Assessment Income Tax, National Insurance contributions and Capital Gains Tax gaps as a percentage of theoretical tax liabilities. The hidden economy and avoidance tax gaps are not shown, as a percentage tax gap is not calculated for these estimates. The Self Assessment tax gap as a percentage of theoretical tax liability has consistently been higher than the PAYE employer compliance tax gap across the time-series.

Figure 4.2: Income Tax, National Insurance contributions and Capital Gains Tax gap as a percentage of total theoretical tax liabilities

Notes for Figure 4.2

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

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

3. All IT, NICs and CGT includes Self Assessment, PAYE, hidden economy and avoidance.

Figure 4.3 shows the proportion the Self Assessment, PAYE employer compliance, hidden economy and avoidance tax gaps of the Income Tax, National Insurance contributions and Capital Gains Tax gap since 2018 to 2019. Self Assessment is the largest component in each year with a 61.7% share in 2022 to 2023, followed by PAYE employer compliance with a 23.9% share, hidden economy with a 10.6% share and then avoidance with a 3.8% share.

Figure 4.3: Shares of Income Tax, National Insurance contributions and Capital Gains Tax gap by component

Year	Self Assessment	PAYE employer compliance	Hidden economy	Avoidance
2018-19	60.7%	23.7%	10.9%	4.7%
2019-20	58.4%	25.1%	12.0%	4.4%
2020-21	61.0%	23.3%	11.2%	4.4%
2021-22	65.4%	21.4%	9.6%	3.6%
2022-23	61.7%	23.9%	10.6%	3.8%

Notes for Figure 4.3

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

2. Figures are rounded to the nearest 0.1%. As a result, components may not appear to sum.

Self Assessment tax gap (Income Tax, National Insurance contributions and Capital Gains Tax)

Summary

The Self Assessment tax gap is estimated using 3 components:

• the business (self-employed taxpayers and partnerships with up to 4 partners) Self Assessment tax gap, estimated using an established approach based on a combination of REP and operational enquiry data

• the non-business (individuals without business income and trusts) Self Assessment tax gap, estimated using an established approach based on a combination of REP and operational enquiry data

• the large partnerships (partnerships with 5 or more partners) Self Assessment tax gap, illustratively estimated using an experimental approach by assuming the tax at risk will be a similar proportion of liabilities to all other Self Assessment taxpayers

In the tax years impacted by COVID-19, adjustments have been made to maintain the validity of certain assumptions and consistency in the time-series.

To evaluate the uncertainty of our Self Assessment tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’. The business and non-business Self Assessment tax gaps are both rated ‘medium’ uncertainty. The large partnerships tax gap is rated ‘very high’ uncertainty.

Figure 4.4 shows the Self Assessment tax gap time-series in absolute terms and as a percentage of theoretical Self Assessment tax liability.

The tax gap for Self Assessment is 12.6% of the theoretical Self Assessment tax liability, or £8.5 billion in absolute terms, in the 2022 to 2023 tax year.

There has been a long-term reduction in the Self Assessment tax gap, from 15.1% in 2005 to 2006 to 12.6% in the 2022 to 2023 tax year. Between 2005 to 2006 and 2013 to 2014 the estimate increased from 15.1% to 22.1%. The Self Assessment tax gap then fell to 14.6% in 2015 to 2016. Since 2016 to 2017, the tax gap has been more stable, with some fluctuations varying between 11.7% and 14.8%.

The Self Assessment gap estimates for the business and non-business components are projected in line with Self Assessment tax liability from 2021 to 2022.

Due to a decrease in the Self Assessment liability in 2022 to 2023, the projected Self Assessment tax gap is estimated to reduce from £9.4 billion in 2021 to 2022 to £8.5 billion in 2022 to 2023.

Figure 4.4: Self Assessment tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2022 to 2023

Notes for Figure 4.4

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

Figure 4.5 shows the overall, business (self-employed and small partnerships), non-business and large partnerships (partnerships with 5 or more partners) Self Assessment gaps as a proportion of theoretical tax liabilities. The Self Assessment business percentage tax gap estimate is the highest relative to the other components, generally more than double the size of the gaps for Self Assessment non-business and large partnerships.

Figure 4.5: Self Assessment tax gap as a percentage of theoretical tax liability, and its components

Notes for Figure 4.5

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

Main findings

Figure 4.6 shows the Self Assessment tax gap, the Self Assessment tax liability and the Self Assessment theoretical tax liability, which is the sum of the tax gap and tax liability, since 2018 to 2019.

The Self Assessment tax liability has increased from £44.5 billion to £58.7 billion in the last 5 years. The largest growth was between 2020 to 2021 and 2021 to 2022, when the tax liability peaked at £62.7 billion. The Self Assessment tax liability then decreased to £58.7 billion in 2022 to 2023.

The Self Assessment net tax gap has increased from £7.7 billion to £8.5 billion in the last 5 years. The net tax gap for 2021 to 2022 and 2022 to 2023 is projected in line with the Self Assessment tax liability. The Self Assessment net tax gap therefore increased between 2020 to 2021 and 2021 to 2022, from £7.2 billion to £9.4 billion. The Self Assessment net tax gap then decreased to £8.5 billion in 2022 to 2023.

Figure 4.6: Self Assessment tax gap, tax liability and theoretical tax liability, since 2018 to 2019 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2018-19	7.7	44.5	52.2
2019-20	6.6	46.9	53.5
2020-21	7.2	52.2	59.4
2021-22	9.4	62.7	72.1
2022-23	8.5	58.7	67.2

Notes for Figure 4.6

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

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

3. Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.

Figure 4.7 shows the Self Assessment tax gap, and its components: gross tax gap, compliance yield and non-payment since 2018 to 2019. The Self Assessment tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

For ‘Measuring tax gaps 2024 edition’, adjustments have been made to the Self Assessment non-payment figures for 2020 to 2021 and 2021 to 2022 and compliance yield figures between 2005 to 2006 and 2021 to 2022 to take account of the impact of COVID-19 and maintain validity of the time-series. These adjustments follow the methodology introduced in the ‘Measuring tax gaps 2022 edition’ and are explained in the Methodological annex.

Figure 4.7 shows our adjusted non-payment figure remains largely stable at between £0.2 billion and £0.3 billion, whilst adjusted compliance yield has increased from £1.3 billion in 2018 to 2019 to £1.5 billion in 2022 to 2023, peaking at £1.9 billion in 2021 to 2022.

The Self Assessment gross tax gap and Self Assessment net tax gap follow the same trend and are generally growing in absolute terms across this 5-year period. The Self Assessment gross tax gap increased from £8.7 billion in 2018 to 2019 to £9.7 billion in 2022 to 2023, peaking at £11.0 billion in 2021 to 2022. The Self Assessment net tax gap increased from £7.7 billion in 2018 to 2019 to £8.5 billion in 2022 to 2023.

Figure 4.7: Components of the Self Assessment tax gap, since 2018 to 2019 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2018-19	8.7	1.3	0.3	7.7
2019-20	8.0	1.6	0.2	6.6
2020-21	8.8	1.8	0.2	7.2
2021-22	11.0	1.9	0.2	9.4
2022-23	9.7	1.5	0.3	8.5

Notes for Figure 4.7

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

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

Proportion of Self Assessment returns with under-declared Self Assessment tax liability

The proportion of Self Assessment returns with under-declared tax liability can be estimated from Self Assessment REP data.

Figure 4.8 shows the estimated proportion of incorrect Self Assessment returns where the Self Assessment tax liability has been under-declared for business and non-business taxpayers. The proportion of incorrect SA returns was broadly stable around 23 between 2016 to 2017 and 2019 to 2020 and increased to 30% in 2020 to 2021. The proportion of returns with under-declaration below £500 increased from 9% of returns in 2019 to 2020 to 14% in 2020 to 2021.

Figure 4.8: Proportion of Self Assessment returns with under-declared Self Assessment tax liability

Notes for Figure 4.8

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

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

Additional findings

Self Assessment business tax gap

Figure 4.9 shows the Self Assessment business (self-employed taxpayers and partnerships with up to 4 partners) tax gap time-series in absolute terms and as a percentage of theoretical Self Assessment business tax liability.

The tax gap for Self Assessment business is 24.3% of the theoretical Self Assessment business tax liability, or £5.9 billion in absolute terms, in the 2022 to 2023 tax year.

The Self Assessment business percentage tax gap has increased from 20.7% in 2005 to 2006 to 24.3% in 2022 to 2023. Between 2005 to 2006 and 2013-14 the tax gap increased from 20.7% to 31.4%. The Self Assessment business tax gap then fell to 18.5% in 2017 to 2018. Since 2017 to 2018, the tax gap has increased from 18.5% in 2017 to 2018 to 24.3% in 2022 to 2023.

The Self Assessment business tax gap estimate is projected in line with Self Assessment business tax liability from 2021 to 2022.

Figure 4.9: Self Assessment business tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2022 to 2023

Notes for Figure 4.9

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

Figure 4.10 shows the Self Assessment business tax gap, the Self Assessment business tax liability, and the theoretical Self Assessment business tax liability, which is the sum of the tax gap and tax liability, since 2018 to 2019.

The Self Assessment business tax liability has increased from £13.9 billion to £18.3 billion in the last 5 years, with substantial growth between 2020 to 2021 and 2021 to 2022 when the tax liability peaked at 22.0 billion. The Self Assessment business net tax gap has increased from £4.8 billion to £5.9 billion in the last 5 years, peaking at £6.7 billion in 2021 to 2022.

Figure 4.10: Self Assessment business tax gap, tax liability and theoretical tax liability, since 2018 to 2019 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2018-19	4.8	13.9	18.6
2019-20	4.2	15.5	19.8
2020-21	5.0	16.8	21.9
2021-22	6.7	22.0	28.7
2022-23	5.9	18.3	24.1

Notes for Figure 4.10

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

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

3. Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.

Figure 4.11 shows the Self Assessment business tax gap, and its components: gross tax gap, compliance yield and non-payment since 2018 to 2019. The Self Assessment business tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

Non-payment was stable at £0.1 billion in each of these years. Compliance yield reduced from £0.3 billion in 2018 to 2019 to £0.2 billion in 2022 to 2023. The gross tax gap increased from £5.0 billion in 2018 to 2019 to £6.0 billion in 2022 to 2023.

Figure 4.11: Components of the Self Assessment business tax gap, since 2018 to 2019 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2018-19	5.0	0.3	0.1	4.8
2019-20	4.6	0.5	0.1	4.2
2020-21	5.5	0.5	0.1	5.0
2021-22	7.2	0.6	0.1	6.7
2022-23	6.0	0.2	0.1	5.9

Notes for Figure 4.11

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

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

Figure 4.12 shows the estimated proportion of incorrect Self Assessment returns where the Self Assessment tax liability has been under-declared for business taxpayers only. The proportion of incorrect Self Assessment returns from business taxpayers was broadly stable around 26% between 2016 to 2017 and 2019 to 2020 and increased to 39% in 2020 to 2021. The proportion of returns with under-declaration below £500 increased from 9% of returns in 2019 to 2020 to 16% in 2020 to 2021.

Figure 4.12 shows the estimated proportion of incorrect Self Assessment returns where the Self Assessment tax liability has been under-declared for business taxpayers only. The proportion of incorrect Self Assessment returns from business taxpayers was broadly stable around 26 between 2016 to 2017 and 2019 to 2020 and increased to 39% in 2020 to 2021. In 2020 to 2021 the proportion of returns with under-declaration below £500 increased from 8.597184% of returns in 2019 to 2020 to 15.848557% in 2020 to 2021.

Figure 4.12: For business taxpayers, proportion of Self Assessment returns with under-declared Self Assessment tax liability

Notes for Figure 4.12

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

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

Self Assessment non-business tax gap

Figure 4.13 shows the Self Assessment non-business (individuals without business income and trusts) tax gap time-series in absolute terms and as a percentage of theoretical Self Assessment non-business tax liability.

The tax gap for Self Assessment non-business is 4.7% of the theoretical Self Assessment non-business tax liability, or £1.2 billion in absolute terms, in the 2022 to 2023 tax year.

There has been a long-term reduction in the Self Assessment non-business tax gap, from 6.9% in 2005 to 2006 to 4.7% in the 2022 to 2023 tax year. There have been some fluctuations over the time-series, and the Self Assessment non-business tax gap reached a peak of 15.8% in 2013 to 2014. Since 2014 to 2015 there has been a long-term downward trend.

The Self Assessment non-business tax gap estimate is projected in line with Self Assessment non-business tax liability from 2021 to 2022.

Figure 4.13: Self Assessment non-business tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2022 to 2023

Notes for Figure 4.13

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

Figure 4.14 shows the Self Assessment non-business tax gap, the Self Assessment non-business tax liability, and the Self Assessment non-business theoretical tax liability, which is the sum of the tax gap and tax liability, since 2018 to 2019.

Self Assessment non-business tax liability has increased from £18.9 billion to £24.8 billion in the last 5 years, with the largest growth between 2020 to 2021 and 2021 to 2022. The net tax gap is observed to be fluctuating between £1.0 billion and £1.7 billion.

Figure 4.14: Self Assessment non-business tax gap, tax liability and theoretical tax liability, since2018 to 2019 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2018-19	1.7	18.9	20.6
2019-20	1.1	19.6	20.6
2020-21	1.0	21.5	22.5
2021-22	1.3	25.0	26.3
2022-23	1.2	24.8	26.0

Notes for Figure 4.14

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

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

3. Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.

Figure 4.15 shows the Self Assessment non-business tax gap, and its components: gross tax gap, compliance yield and non-payment since 2018 to 2019. The Self Assessment non-business tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

Non-payment was stable at £0.1 billion in the last 5 years. Compliance yield was broadly stable between £0.7 billion and £0.9 billion. The gross tax gap fluctuated between £1.8 billion and £2.2 billion over the 5 years.

Figure 4.15: Components of the Self Assessment non-business tax gap, since 2018 to 2019 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2018-19	2.2	0.7	0.1	1.7
2019-20	1.8	0.8	0.1	1.1
2020-21	1.8	0.8	0.1	1.0
2021-22	2.1	0.8	0.1	1.3
2022-23	2.0	0.9	0.1	1.2

Notes for Figure 4.15

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

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

Figure 4.16 shows the estimated proportion of incorrect Self Assessment returns where the Self Assessment tax liability has been under-declared for non-business taxpayers only

The proportion of incorrect Self Assessment returns from non-business taxpayers decreased from 23% in 2016 to 2017 to 19% in 2019 to 2020 and then increased to 24% in 2020 to 2021. The proportion of returns with under-declaration below £500 increased from 9% of returns in 2019 to 2020 to 13% in 2020 to 2021.

The proportion of incorrect Self Assessment returns from non-business taxpayers decreased from 23% in 2016 to 2017to 19% in 2019 to 2020 and then increased to 24% in 2020 to 2021. The proportion of returns with under-declaration below £500 increased from 9% of returns in 2019 to 2020 to 13% in 2020 to 2021.

Between 2016 to 2017 and 2020 to 2021, the proportion of taxpayers with under-declared Self Assessment tax liability was lower for non-business taxpayers than for business taxpayers (shown in Figure 4.12).

Figure 4.16: For non-business taxpayers, proportion of Self Assessment returns with under-declared Self Assessment tax liability

Notes for Figure 4.16

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

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

Self Assessment large partnerships

Figure 4.17 shows the Self Assessment large partnerships (partnerships with 5 or more partners) tax gap time-series in absolute terms and as a percentage of Self Assessment large partnerships theoretical tax liability. The Self Assessment large partnerships tax gap is illustratively estimated and is not covered by the Self Assessment REP.

The tax gap for Self Assessment large partnerships is 8.1% of the theoretical Self Assessment large partnerships tax liability, or £1.4 billion in absolute terms, in the 2022 to 2023 tax year.

Figure 4.17 shows that the Self Assessment large partnerships tax gap decreased from 9.2% in 2005 to 2006 to 8.1% in 2022 to 2023. It reached a peak of 15.3% in 2013 to 2014, followed by a decline to 11.0% in 2014 to 2015. Since 2014 to 2015 the Self Assessment large partnerships tax gap has gradually decreased from 11.0% in 2014 to 2015 to 8.1% in 2022 to 2023.

The Self Assessment large partnerships tax gap estimate is projected in line with Self Assessment tax liability from 2021 to 2022.

Figure 4.17: Self Assessment large partnerships tax gap by value and as a percentage of theoretical tax liabilities, 2005 to 2006 up to 2022 to 2023

Notes for Figure 4.17

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

Figure 4.18 shows the Self Assessment large partnerships tax gap, the Self Assessment large partnerships tax liability, and the theoretical Self Assessment large partnerships tax liability, which is the sum of the tax gap and tax liability, since 2018 to 2019.

The Self Assessment large partnerships tax gap fluctuated between £1.1 billion and £1.4 billion over the 5 years. The tax liability increased from £11.7 billion to £15.6 billion.

Figure 4.18: Self Assessment large partnerships tax gap, tax liability and theoretical tax liability, since 2018 to 2019 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2018-19	1.3	11.7	13.0
2019-20	1.3	11.8	13.1
2020-21	1.1	13.8	15.0
2021-22	1.4	15.7	17.1
2022-23	1.4	15.6	17.0

Notes for Figure 4.18

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

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

3. Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.

Figure 4.19 shows the Self Assessment large partnerships tax gap, and its components: gross tax gap, compliance yield and non-payment since 2018 to 2019. The Self Assessment large partnerships tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

The Self Assessment large partnerships gross tax gap increased from £1.5 billion in 2018 to 2019 to £1.7 billion in 2022 to 2023. Non-payment was stable around £0.1 billion in each of these years. Compliance yield was broadly stable around £0.4 billion per year.

Figure 4.19: Components of the Self Assessment large partnerships tax gap, since 2018 to 2019 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2018-19	1.5	0.3	0.1	1.3
2019-20	1.6	0.4	0.1	1.3
2020-21	1.5	0.4	0.1	1.1
2021-22	1.8	0.5	<0.1	1.4
2022-23	1.7	0.4	0.1	1.4

Notes for Figure 4.19

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

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

Wealthy taxpayers in Self Assessment

Taxpayers in Self Assessment are defined as wealthy if their income is greater than £200,000 or they have assets equal to or above £2 million. Wealthy taxpayers have complex tax affairs and have tax liabilities which cut across the 3 Self Assessment tax gap components: business, non-business and large partnerships.

Figure 4.20 shows the wealthy taxpayers Self Assessment tax gap time-series in absolute terms and as a percentage of wealthy taxpayers theoretical Self Assessment tax liability.

The tax gap for wealthy taxpayers in Self Assessment is 4.1% of the theoretical tax liability for wealthy Self Assessment taxpayers, or £1.6 billion in absolute terms, in 2022 to 2023.

The wealthy taxpayers Self Assessment tax gap has been broadly stable since 2018 to 2019 at between 3.9% and 4.7%, down from 5.4% in 2016 to 2017.

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. The trend for these years therefore largely mirrors that of the overall Self Assessment tax gap.

The wealthy Self Assessment tax gap estimate for the business and non-business components are projected in line with wealthy Self Assessment tax liability from 2021 to 2022.

Figure 4.20: Estimated wealthy Self Assessment tax gap

Notes for Figure 4.20

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

Revisions

Figure 4.21 shows the revisions to the Self Assessment tax gap since the publication of the ‘Measuring tax gaps 2023 edition’.

The Self Assessment tax gap time-series is revised downwards from ‘Measuring tax gaps 2023 edition’ for 2014 to 2015 and upwards from 2018 to 2019 onwards. There is a correction in the methodology for 2014 to 2015 in compiling the results of the random enquiry data to ensure only tax yield that is relevant to the tax year is captured.

Settlement of long-running cases included in the REP for which we previously had to forecast the outcome and updating the forecasts for open cases is leading to higher tax gap estimates in 2018 to 2019 and 2019 to 2020. These long-running cases settled for higher amounts than forecast. The 2020 to 2021 estimates are now based on Self Assessment business and non-business REP data rather than being projected from 2019 to 2020.

Figure 4.21: Revisions to the Self Assessment tax gap since the ‘Measuring tax gaps 2023 edition’

Notes for Figure 4.21

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

2. MTG stands for ‘Measuring tax gaps’.

PAYE employer compliance (Income Tax and National Insurance contributions)

Summary

Employers are required to make returns under the PAYE regulations to account for Income Tax and National Insurance contributions for their employees. The PAYE employer compliance tax gap is the difference between amount of Income Tax and National Insurance contributions that should be collected through PAYE due on earnings and other income from employment, and the amount that is actually paid. The scope of these figures also includes tax due on occupational pensions taxed through PAYE.

The PAYE employer compliance tax gap is estimated using 3 components:

• The small businesses PAYE employer compliance tax gap is estimated using an established bottom-up random enquiry methodology

• The mid-sized businesses PAYE employer compliance tax gap is estimated using an established bottom-up statistical methodology

• The large businesses PAYE employer compliance tax gap is estimated using an experimental methodology.

To evaluate the uncertainty of the PAYE employer compliance tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’. The small businesses PAYE employer compliance tax gap has ‘medium’, the mid-sized businesses PAYE employer compliance tax gap has ‘medium’, and the large businesses PAYE employer compliance tax gap has ‘very high’ uncertainty.

Figure 4.22 shows the PAYE employer compliance tax gap time-series in absolute terms and as a percentage of theoretical tax liability.

The PAYE employer compliance tax gap is 0.9% of the theoretical PAYE tax liability, or £3.3 billion in absolute terms, in the 2022 to 2023 tax year

There has been an overall reduction in the PAYE employer compliance tax gap percentage from 1.6% to 0.9% between the 2005 to 2006 and 2022 to 2023 tax years. The tax gap percentage was broadly stable between 2005 to 2006 and 2013 to 2014, varying between 1.3% and 1.7%. Since 2013 to 2014 the tax gap percentage has declined from 1.6% to 0.9% in 2022 to 2023.

The components of PAYE tax gap are projected in line with PAYE tax liability from 2021 to 2022 where sufficient actual data is not yet available.

Figure 4.22: PAYE employer compliance tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2022 to 2023

Notes for Figure 4.22

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

Figure 4.23 shows small businesses, mid-sized businesses, large businesses and all businesses PAYE employer compliance tax gaps as a proportion of theoretical tax liability.

Up until 2017 to 2018 small businesses generally had a higher percentage PAYE employer compliance tax gap than the other 2 customer groups. The mid-sized businesses PAYE employer compliance tax gap has generally been the lowest tax gap percentage since 2015 to 2016, with the exception of 2017 to 2018 where we saw a peak in mid-sized businesses.

There has been a decline in the PAYE employer compliance tax gap for small businesses from 2.4% in 2015 to 2016 to 0.7% in 2022 to 2023. The PAYE employer compliance mid-sized businesses tax gap has declined from 1.6% in 2013 to 2014 to 0.6% in 2022 to 2023 with the exception of 2017 to 2018 where we saw a peak of 1.8%. The PAYE employer compliance large businesses percentage tax gap is estimated at 1.1% in 2022 to 2023 and is an illustrative estimate.

Figure 4.23: PAYE employer compliance tax gap as a percentage of total theoretical tax liability by component

Notes for Figure 4.23

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

Revisions

Figure 4.24 shows the revisions to the overall PAYE employer compliance tax gap percentage since the publication of the ‘Measuring tax gaps 2023 edition’.

From 2014 to 2015 onwards there are minor revisions in the mid-sized businesses PAYE employer compliance tax gap percentage in both directions, primarily due to compliance cases settling for compliance yield different than previously forecast.

There is a small upward revision to the small businesses PAYE employer compliance tax gap estimate for 2020 to 2021 and 2021 to 2022 due to methodological improvements and random enquiry cases for 2021 to 2022 settling for more compliance yield than forecast.

Figure 4.24: Revisions to the PAYE employer compliance tax gap percentage since the ‘Measuring tax gaps 2023 edition’.

Notes for Figure 4.24

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

2. MTG stands for ‘Measuring tax gaps’.

Main findings

Figure 4.25 shows the overall PAYE employer compliance tax gap, tax liability, and the theoretical liability, which is the sum of the tax gap and tax liability, since 2018 to 2019.

PAYE liabilities have increased from £294.3 billion in 2018 to 2019 to £382.6 billion in 2022 to 2023. The net tax gap has remained stable between £2.7 billion and £3.3 billion in the last 5 years.

The total theoretical PAYE employer compliance liability has increased from £297.3 billion in 2018 to 2019 to £385.9 billion in 2022 to 2023.

Figure 4.25: PAYE employer compliance tax gap, tax liability and theoretical tax liability, since 2018 to 2019 (£ billion)

Year	Net tax gap	Liability	Total theoretical tax liability
2018-19	3.0	294.3	297.3
2019-20	2.8	300.2	303.0
2020-21	2.7	304.8	307.6
2021-22	3.1	344.4	347.4
2022-23	3.3	382.6	385.9

Notes for Figure 4.25

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

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

3. Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.

Figure 4.26 shows the overall PAYE employer compliance tax gap, and its components: gross tax gap, compliance yield and non-payment since 2018 to 2019. The overall PAYE employer compliance tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

The gross tax gap increased from £2.0 billion in 2018 to 2019 to £2.7 billion in 2022 to 2023. Compliance yield was broadly stable between £0.1 billion and £0.2 billion in the past 5 years. Non-payment decreased from £1.3 billion in 2018 to 2019 to £0.8 billion in 2022 to 2023.

The overall PAYE employer compliance tax gap has been broadly stable in the last 5 years.

Figure 4.26: Components of the PAYE employer compliance tax gap, since 2018 to 2019 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2018-19	2.0	0.2	1.3	3.0
2019-20	2.0	0.2	1.0	2.8
2020-21	2.2	0.2	0.7	2.7
2021-22	2.7	0.1	0.5	3.1
2022-23	2.7	0.2	0.8	3.3

Notes for Figure 4.26

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

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

Small businesses

Figure 4.27 shows the small businesses PAYE employer compliance tax gap, and its components: gross tax gap, compliance yield and non-payment since 2018 to 2019. The small businesses PAYE employer compliance tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

The small businesses PAYE employer compliance gross gap remained broadly stable between £0.3 billion and £0.5 billion over the last 5 years. Compliance yield has been broadly stable at around £0.1 billion in the last 5 years. Non-payment has decreased from £0.5 billion in 2018 to 2019 to £0.3 billion in 2020 to 2021 and has remained broadly stable in the last 3 years. The overall small businesses PAYE employer compliance tax gap has decreased from £0.9 billion in 2018 to 2019 to £0.7 billion in 2022 to 2023.

Figure 4.27: Components of the small businesses PAYE employer compliance tax gap, since 2018 to 2019 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2018-19	0.5	0.1	0.5	0.9
2019-20	0.4	0.1	0.4	0.7
2020-21	0.3	<0.1	0.3	0.5
2021-22	0.5	<0.1	0.2	0.7
2022-23	0.4	<0.1	0.3	0.7

Notes for Figure 4.27

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

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

Mid-sized businesses

Figure 4.28 shows the mid-sized businesses PAYE employer compliance tax gap, and its components: gross tax gap, compliance yield and non-payment since 2018 to 2019. The mid-sized businesses PAYE employer compliance tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

The mid-sized businesses PAYE employer compliance gross tax gap has increased from £0.1 billion to £0.5 billion in the last 5 years. Compliance yield has increased slightly in 2022 to 2023 to £0.1 billion.

Non-payment has decreased from £0.5 billion to £0.3 billion in the last 5 years. This has led to the mid-sized businesses PAYE employer compliance net tax gap being broadly stable between £0.5 billion and £0.7 billion in the last 5 years.

Figure 4.28: Components of the mid-sized businesses PAYE employer compliance tax gap, since 2018 to 2019 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2018-19	0.1	<0.1	0.5	0.6
2019-20	0.2	<0.1	0.4	0.5
2020-21	0.4	<0.1	0.3	0.6
2021-22	0.4	<0.1	0.2	0.5
2022-23	0.5	0.1	0.3	0.7

Notes for Figure 4.28

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

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

Large businesses

Figure 4.29 shows the large businesses PAYE employer compliance tax gap, and its components: gross tax gap, compliance yield and non-payment since 2018 to 2019. The large businesses PAYE employer compliance tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.

The large businesses PAYE employer compliance gross tax gap is estimated using historical trends in the small businesses PAYE employer compliance tax gap. The gross tax gap has increased from £1.4 billion in 2018 to 2019 to £1.8 billion in 2022 to 2023 due to increasing large businesses PAYE liabilities.

Compliance yield has been broadly stable around £0.1 billion in the last 5 years. Non-payment has decreased from £0.3 billion to £0.2 billion in the last 5 years.

The large businesses PAYE employer compliance tax gap has increased from £1.6 billion to £1.9 billion in the last 5 years.

Figure 4.29: Components of the large businesses PAYE employer compliance tax gap, since 2018 to 2019 (£ billion)

Year	Gross tax gap	Compliance yield	Non-payment	Net tax gap
2018-19	1.4	0.1	0.3	1.6
2019-20	1.5	0.1	0.3	1.6
2020-21	1.5	0.1	0.2	1.6
2021-22	1.8	<0.1	0.1	1.9
2022-23	1.8	0.1	0.2	1.9

Notes for Figure 4.29

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

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

Hidden economy (Income Tax, National Insurance contributions and Capital Gains Tax)

Main findings

The term “hidden economy” refers to sources of taxable economic activity that are entirely hidden from HMRC. It is estimated from 2 components:

• Individuals who are employees in their legitimate occupation but do not declare earnings from other sources of income (moonlighters)

• Individuals who do not declare any of their income to HMRC, be it earned or unearned (ghosts)

The hidden economy tax gap estimates focus on personal income taxes (Income Tax, National Insurance contributions and Capital Gains Tax) not paid from moonlighters and ghosts defined above. It does not consider other types of tax.

The hidden economy tax gap is estimated using a combination of established bottom-up management information and survey data.

To evaluate the uncertainty of the hidden economy tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’. The uncertainty rating for moonlighters is ‘high’ and ghosts is ‘very high’.

Figure 4.30 shows the hidden economy tax gap in absolute terms split by moonlighters and ghosts from 2005 to 2006 up to 2022 to 2023.

The hidden economy tax gap on personal income taxes is £1.5 billion in 2022 to 2023.

The hidden economy tax gap varied between £1.3 billion and £1.5 billion from 2005 to 2006 and 2022 to 2023.

The tax gap for moonlighters varied between £0.7 billion and £0.9 billion from 2005 to 2006 and 2022 to 2023.

The tax gap for ghosts increased from £0.4 billion in 2005 to 2006 to £0.6 billion in 2022 to 2023. It peaked at £0.7 billion in 2015 to 2016.

Figure 4.30: Hidden economy tax gap by value, 2005 to 2006 up to 2022 to 2023

Notes for Figure 4.30

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

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

Revisions

Figure 4.31 shows the revisions to the hidden economy tax gap since ‘Measuring tax gaps 2023 edition’. There are no revisions for this publication.

Figure 4.31: Revisions to tax gap on personal income taxes due to the hidden economy since the ‘Measuring tax gaps 2023 edition’

Notes for Figure 4.31

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

2. MTG stands for ‘Measuring tax gaps’.

Avoidance (Income Tax, National Insurance contributions and Capital Gains Tax)

Main findings

The avoidance tax gap relates to marketed avoidance schemes sold to one or more individuals and employers for a fee, with the aim of reducing their tax liabilities. It is made up of unpaid Income Tax, National Insurance contributions and Capital Gains Tax that should, in theory, be paid to HMRC.

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.

This does not include other types of avoidance related to Corporation Tax or VAT, for example.

The avoidance tax gap is estimated using an experimental bottom-up method. This is done using HMRC’s avoidance management information system, which contains information about identified avoidance schemes used by individuals, trusts, partnerships and employers.

To evaluate the uncertainty of our avoidance tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’. The avoidance tax gap estimate is ‘very high’.

Figure 4.32 shows the avoidance tax gap time-series in absolute terms.

The avoidance tax gap related to marketed avoidance schemes is £0.5 billion for the tax year 2022 to 2023.

There has been a reduction in the avoidance tax gap from £1.5 billion in 2005 to 2006 to £0.5 billion in 2022 to 2023. The avoidance tax gap is projected from 2020 to 2021 in line with total Income Tax, National Insurance contributions and Capital Gains Tax liabilities.

Figure 4.32: Avoidance tax gap by value 2005 to 2006 up to 2022 to 2023

Notes for Figure 4.32

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

2. The tax gap estimates are projected from 2020 to 2021, 2021 to 2022 and 2022 to 2023 in line with total Income Tax, National Insurance contributions and Capital Gains Tax liabilities.

Revisions

Figure 4.33 shows the revisions to the avoidance tax gap since the publication of the ‘Measuring tax gaps 2023 edition’. There are no revisions for this publication.

Given limited data available for recent tax years, the 2019 to 2020 tax gap estimate has been used to derive estimates from 2020 to 2021. This is done by projecting the 2019 to 2020 tax gap estimate in line with total Income Tax, National Insurance contributions and Capital Gains Tax liabilities.

Figure 4.33: Revisions to avoidance tax gap since the ‘Measuring tax gaps 2023 edition’.

Notes for Figure 4.33

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

2. MTG stands for ‘Measuring tax gaps’.