5. Tax gaps: Corporation Tax
Updated 20 June 2024
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Total Corporation Tax
Summary
The Corporation Tax gap is estimated using 3 components:
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the small businesses Corporation Tax gap is estimated using an established bottom-up methodology using random enquiry programme data
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the mid-sized businesses Corporation Tax gap is estimated using an established bottom-up statistical methodology
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the large businesses Corporation Tax gap is estimated using an established bottom-up statistical methodology
To evaluate the uncertainty of our Corporation Tax gap, we assign an uncertainty rating for each tax gap component, ranging from ‘very low’ to ‘very high’. The small, mid-sized and large businesses Corporation Tax gaps all have ‘medium’ uncertainty.
Figure 5.1 shows the Corporation Tax gap time-series in absolute terms and as a percentage of theoretical Corporation Tax liability.
The tax gap for Corporation Tax is 13.9% of the theoretical Corporation Tax liability, or £13.7 billion in absolute terms, in the tax year 2022 to 2023.
The Corporation Tax gap declined from 11.4% in 2005 to 2006 to its lowest percentage of 6.5% in 2011 to 2012. Since 2011 to 2012 the Corporation Tax gap has increased to 13.9% in 2022 to 2023.
The components of the Corporation Tax gap are projected in line with Corporation Tax liabilities from 2021 to 2022 for small businesses, 2020 to 2021 for mid-sized businesses and 2018 to 2019 for large businesses.
Figure 5.1: Corporation Tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2022 to 2023
Notes for Figure 5.1
- The full data series can be seen in the online tables.
Figure 5.2 shows the small businesses, mid-sized businesses, large businesses and all businesses Corporation Tax gaps as a proportion of theoretical tax liabilities. The tax gap estimates for small businesses Corporation Tax are the highest across the time-series and large businesses Corporation Tax gap the lowest.
The increase in the Corporation Tax gap from 9.1% in 2018 to 2019 to 14.3% in 2020 to 2021 is primarily due to increases in the small businesses tax gap, which increased from 19.9% to 32.0% in the same period.
Figure 5.2: Corporation Tax gap as a percentage of total theoretical tax liabilities
Notes for Figure 5.2
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The full data series can be seen in the online tables.
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Further details of the customer group classification are available in the Chapter 1 and in the Methodological annex.
Main findings
Figure 5.3 shows the Corporation Tax gap, tax liability, and the theoretical tax liability, which is the sum of the tax gap and tax liability, since 2018 to 2019.
The net tax gap has increased from £5.6 billion in 2018 to 2019 to £13.7 billion in 2022 to 2023. In the same period Corporation Tax liability has increased from £56.2 billion to £84.5 billion. This results in £98.1 billion total theoretical liability in 2022 to 2023.
Figure 5.3: Corporation Tax gap, tax liability and theoretical tax liability, since 2018 to 2019 (£ billion)
| Year | Net tax gap | Liability | Total theoretical tax liability |
|---|---|---|---|
| 2018-19 | 5.6 | 56.2 | 61.9 |
| 2019-20 | 8.5 | 55.9 | 64.4 |
| 2020-21 | 9.0 | 54.0 | 63.0 |
| 2021-22 | 10.8 | 66.2 | 77.0 |
| 2022-23 | 13.7 | 84.5 | 98.1 |
Notes for Figure 5.3
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The full data series can be seen in the online tables.
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Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
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Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.
Figure 5.4 shows the Corporation Tax gap, and its components: gross tax gap, compliance yield and non-payment since 2018 to 2019. The Corporation Tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.
The gross tax gap has increased from £6.6 billion in 2018 to 2019 to £15.0 billion in 2022 to 2023. Compliance yield increased from £1.3 billion to £1.6 billion over the last 5 years. Non-payment has stayed between £0.2 billion and £0.3 billion between 2018 to 2019 and 2022 to 2023.
Figure 5.4: Components of the Corporation Tax gap, since 2018 to 2019 (£ billion)
| Year | Gross tax gap | Compliance yield | Non-payment | Net tax gap |
|---|---|---|---|---|
| 2018-19 | 6.6 | 1.3 | 0.3 | 5.6 |
| 2019-20 | 9.5 | 1.2 | 0.3 | 8.5 |
| 2020-21 | 9.9 | 1.1 | 0.2 | 9.0 |
| 2021-22 | 11.9 | 1.3 | 0.2 | 10.8 |
| 2022-23 | 15.0 | 1.6 | 0.3 | 13.7 |
Notes for Figure 5.4
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The full data series can be seen in the online tables.
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Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
Revisions
Figure 5.5 shows the revisions to the Corporation Tax gap since the publication of the ‘Measuring tax gaps 2023 edition’.
The Corporation Tax gap for 2020 to 2021 has been revised upwards, mainly due to increases in the small businesses Corporation Tax gap derived from random enquiry programme data. Results for 2020 to 2021 are now based on random enquiry programme data rather than being projected from 2019 to 2020.
Figure 5.5: Revisions to Corporation Tax gap since the ‘Measuring tax gaps 2023 edition’
Notes for Figure 5.5
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The full data series can be seen in the online tables.
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MTG stands for ‘Measuring tax gaps’.
Corporation Tax for small businesses
Main findings
The tax gap for small businesses Corporation Tax uses an established bottom-up methodology using random enquiry programme data.
The 2022 to 2023 uncertainty rating for the small businesses Corporation Tax gap is ‘medium’.
Figure 5.6 shows the small businesses Corporation Tax gap time-series in absolute terms and as a percentage of small businesses theoretical Corporation Tax liability.
The tax gap for small businesses Corporation Tax is 32.2% of the small businesses theoretical Corporation Tax liability, or £10.9 billion in absolute terms, in the 2022 to 2023 tax year.
The small businesses Corporation Tax gap followed a downward trend between 2005 to 2006 and 2011 to 2012, declining from 19.9% to its lowest percentage of 9.4%. Since 2011 to 2012 it has increased, reaching a high of 32.2% in 2022 to 2023. The estimates are projected in line with small businesses Corporation Tax liability from 2021 to 2022.
Figure 5.6: Small businesses Corporation Tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2022 to 2023
Notes for Figure 5.6
- The full data series can be seen in the online tables.
Figure 5.7 shows the small businesses Corporation Tax gap, tax liability and the theoretical tax liability, which is the sum of the tax gap and tax liability, since 2018 to 2019.
The small businesses Corporation Tax gap has increased from £3.7 billion in 2018 to 2019 to £10.9 billion in 2022 to 2023. In the same period small businesses Corporation Tax liability has increased from £14.8 billion to £22.8 billion. This results in £33.7 billion small businesses Corporation Tax total theoretical liability in 2022 to 2023.
The small businesses Corporation Tax gap is projected in line with liabilities from 2021 to 2022, so we see a similar growth in the net tax gap estimates in those years.
Figure 5.7: Small businesses Corporation Tax gap, tax liability and theoretical tax liability, since 2018 to 2019 (£ billion)
| Year | Net tax gap | Liability | Total theoretical tax liability |
|---|---|---|---|
| 2018-19 | 3.7 | 14.8 | 18.4 |
| 2019-20 | 6.8 | 15.7 | 22.4 |
| 2020-21 | 7.3 | 15.4 | 22.7 |
| 2021-22 | 8.6 | 18.3 | 27.0 |
| 2022-23 | 10.9 | 22.8 | 33.7 |
Notes for Figure 5.7
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The full data series can be seen in the online tables.
-
Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
-
Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.
Figure 5.8 shows the small businesses Corporation Tax gap, and its components: gross tax gap, compliance yield and non-payment since 2018 to 2019. The small businesses Corporation Tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.
The small businesses Corporation Tax gross gap has increased from £3.7 billion in 2018 to 2019 to £10.8 billion in 2022 to 2023. Compliance yield has been broadly stable between £0.1 billion and £0.2 billion. Non-payment has been broadly stable between £0.1 billion and £0.2 billion.
Figure 5.8: Components of the small businesses Corporation Tax gap, since 2018 to 2019 (£ billion)
| Year | Gross tax gap | Compliance yield | Non-payment | Net tax gap |
|---|---|---|---|---|
| 2018-19 | 3.7 | 0.2 | 0.2 | 3.7 |
| 2019-20 | 6.7 | 0.2 | 0.2 | 6.8 |
| 2020-21 | 7.3 | 0.1 | 0.1 | 7.3 |
| 2021-22 | 8.6 | 0.1 | 0.1 | 8.6 |
| 2022-23 | 10.8 | 0.1 | 0.2 | 10.9 |
Notes for Figure 5.8
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The full data series can be seen in the online tables.
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Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
Additional findings
Figure 5.9 shows that the proportion of small businesses submitting an incorrect Corporation Tax return with under-declared tax liability increased from 22% in 2016 to 2017 to 45% in 2020 to 2021.
Around three quarters of those who submitted incorrect returns did so with an additional Corporation Tax liability of over £1,000, and around one quarter with an additional Corporation Tax liability of less than £1,000.
Figure 5.9: Proportion of small businesses with incorrect Corporation Tax returns where additional liability established
Notes for Figure 5.9
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The full data series can be seen in the online tables.
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Figures are rounded to the nearest 1 percent. As a result, components may not appear to sum.
Revisions
Figure 5.10 shows the revisions to the small businesses Corporation Tax gap since the publication of the ‘Measuring tax gaps 2023 edition’.
The small businesses Corporation Tax gaps for the 2019 to 2020, 2020 to 2021 and 2021 to 2022 years are revised upwards following the inclusion of 2020 to 2021 random enquiry programme data, identifying greater non-compliance than previously forecast. Additionally, updated forecasts for long-running cases that remain open in 2019 to 2020 contribute to the upward revision.
Settlement data on closed cases for previous years and adjustments to the methodology for averaging the results of random enquiry programme data across years lead to small changes in the tax gap estimates across the time-series.
Figure 5.10: Revisions to small businesses Corporation Tax gap since the ‘Measuring tax gaps 2023 edition’
Notes for Figure 5.10
-
The full data series can be seen in the online tables.
-
MTG stands for ‘Measuring tax gaps’.
Corporation Tax for mid-sized businesses
Main findings
We use an established bottom-up approach for estimating the mid-sized businesses Corporation Tax gap based on a statistical methodology.
The 2022 to 2023 uncertainty rating for the mid-sized businesses Corporation Tax gap is ‘medium’.
Figure 5.11 shows the mid-sized businesses Corporation Tax gap time-series in absolute terms and as a percentage of mid-sized businesses theoretical Corporation Tax liability.
The tax gap for mid-sized businesses Corporation Tax is 6.7% of the mid-sized businesses theoretical Corporation Tax liability, or £1.6 billion in absolute terms, in the 2022 to 2023 tax year.
The tax gap for mid-sized businesses Corporation Tax has decreased steadily from 13.3% in 2005 to 2006 to a projected 6.7% in 2022 to 2023.
The estimates are projected in line with mid-sized businesses Corporation Tax liability from 2020 to 2021.
Figure 5.11: Mid-sized businesses Corporation Tax gap by value and as a percentage of theoretical tax liability, 2005 to 2006 up to 2022 to 2023
Notes for Figure 5.11
- The full data series can be seen in the online tables.
Figure 5.12 shows the mid-sized businesses Corporation Tax gap, tax liability, and the theoretical liability, which is the sum of the tax gap and tax liability, since 2018 to 2019.
The mid-sized businesses Corporation Tax gap has increased from £1.1 billion to a projected £1.6 billion over the last 5 years. Mid-sized businesses Corporation Tax liability has increased from £12.7 billion in 2018 to 2019 to £22.7 billion in 2022 to 2023. Total theoretical liability has increased from £13.8 billion to £24.3 billion.
Figure 5.12: Mid-sized businesses Corporation Tax gap, tax liability and theoretical tax liability, since 2018 to 2019 (£ billion)
| Year | Net tax gap | Liability | Total theoretical tax liability |
|---|---|---|---|
| 2018-19 | 1.1 | 12.7 | 13.8 |
| 2019-20 | 0.9 | 12.1 | 13.0 |
| 2020-21 | 1.0 | 13.7 | 14.7 |
| 2021-22 | 1.3 | 18.2 | 19.5 |
| 2022-23 | 1.6 | 22.7 | 24.3 |
Notes for Figure 5.12
-
The full data series can be seen in the online tables.
-
Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
-
Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.
Figure 5.13 shows the mid-sized businesses Corporation Tax gap, and its components: gross tax gap, compliance yield and non-payment since 2018 to 2019. The mid-sized businesses Corporation Tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.
The gross tax gap and compliance yield are both projected in line with mid-sized businesses Corporation Tax liability for the latest 3 years.
The gross tax gap increased from £1.1 billion in 2018 to 2019 to a projected £1.7 billion in 2022 to 2023. Compliance yield has been broadly stable between £0.1 billion and £0.2 billion over the last 5 years. Non-payment has remained stable around £0.1 billion over the last 5 years.
Figure 5.13: Components of the mid-sized businesses Corporation Tax gap, since 2018 to 2019 (£ billion)
| Year | Gross tax gap | Compliance yield | Non-payment | Net tax gap |
|---|---|---|---|---|
| 2018-19 | 1.1 | 0.1 | 0.1 | 1.1 |
| 2019-20 | 0.9 | 0.1 | 0.1 | 0.9 |
| 2020-21 | 1.0 | 0.1 | <0.1 | 1.0 |
| 2021-22 | 1.3 | 0.1 | <0.1 | 1.3 |
| 2022-23 | 1.7 | 0.2 | 0.1 | 1.6 |
Notes for Figure 5.13
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The full data series can be seen in the online tables.
-
Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
Revisions
Figure 5.14 shows the revisions to the mid-sized businesses Corporation Tax gap percentage since the publication of the ‘Measuring tax gaps 2023 edition’.
For ‘Measuring tax gaps 2024 edition’ there have been methodological improvements which have caused revisions compared to the previous publication. These improvements are explained in the Methodological Annex. The main reason for revisions to historical estimates between 2015 to 2016 and 2021 to 2022 is updating the non-detection multiplier to reflect the latest assessment.
As compliance cases can take many years to close, the compliance yield of open cases is forecasted. Estimates are likely to be revised between publications due to differences between forecast and actual compliance yield. This has caused minor revisions from 2014 to 2015 onwards.
Figure 5.14: Revisions to mid-sized businesses Corporation Tax gap since ‘Measuring tax gaps 2023 edition’
Notes for Figure 5.14
-
The full data series can be seen in the online tables.
-
MTG stands for ‘Measuring tax gaps’.
Corporation Tax for large businesses
Main findings
The large businesses Corporation Tax gap is estimated using an established statistical methodology.
The uncertainty rating for the large businesses Corporation Tax gap estimate is ‘medium’.
Figure 5.15 shows the large businesses Corporation Tax gap time-series in absolute terms and as a percentage of large businesses Corporation Tax liability.
The tax gap for large businesses Corporation Tax is 2.9% of the large businesses theoretical Corporation Tax liability, or £1.2 billion in absolute terms, in the 2022 to 2023 tax year.
The tax gap for large businesses Corporation Tax has declined steadily from 8.7% in 2005 to 2006 to a projected 2.9% in 2022 to 2023. The large businesses Corporation Tax gap estimates are projected in line with large businesses Corporation Tax liability from 2018 to 2019.
Figure 5.15: Large businesses Corporation Tax gap by value and as a percentage of theoretical tax liabilities, 2005 to 2006 up to 2022 to 2023
Notes for Figure 5.15
- The full data series can be seen in the online tables.
Figure 5.16 shows the large businesses Corporation Tax gap, tax liability, and the theoretical liability, which is the sum of the tax gap and tax liability, since 2018 to 2019.
Large businesses Corporation Tax liability has increased from £28.8 billion in 2018 to 2019 to £39.0 billion in 2022 to 2023. The net tax gap has increased from £0.9 billion to £1.2 billion over the last 5 years.
Figure 5.16: Large businesses Corporation Tax gap, tax liability and theoretical tax liability, since 2018 to 2019 (£ billion)
| Year | Net tax gap | Liability | Total theoretical tax liability |
|---|---|---|---|
| 2018-19 | 0.9 | 28.8 | 29.7 |
| 2019-20 | 0.9 | 28.1 | 29.0 |
| 2020-21 | 0.7 | 24.9 | 25.6 |
| 2021-22 | 0.9 | 29.6 | 30.5 |
| 2022-23 | 1.2 | 39.0 | 40.2 |
Notes for Figure 5.16
-
The full data series can be seen in the online tables.
-
Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
-
Liability refers to the actual amount expected to be received by HMRC based on taxpayer declarations and HMRC’s compliance activity.
Figure 5.17 shows the large businesses Corporation Tax gap, and its components: gross tax gap, compliance yield and non-payment since 2018 to 2019. The large businesses Corporation Tax gap is calculated as the gross tax gap plus non-payment and minus compliance yield.
The gross tax gap and compliance yield are both projected in line with large businesses Corporation Tax liability from 2018 to 2019.
The gross tax gap is projected to increase from £1.9 billion in 2018 to 2019 to £2.5 billion in 2022 to 2023. Compliance yield is projected to increase from £1.0 billion in 2018 to 2019 to £1.4 billion in 2022 to 2023. Non-payment has been less than £0.1 billion in each of the past 5 years.
The net tax gap is projected to increase from £0.9 billion in 2018 to 2019 to £1.2 billion in 2022 to 2023.
Figure 5.17: Components of the large businesses Corporation Tax gap, since 2018 to 2019 (£ billion)
| Year | Gross tax gap | Compliance yield | Non-payment | Net tax gap |
|---|---|---|---|---|
| 2018-19 | 1.9 | 1.0 | <0.1 | 0.9 |
| 2019-20 | 1.8 | 1.0 | <0.1 | 0.9 |
| 2020-21 | 1.6 | 0.9 | <0.1 | 0.7 |
| 2021-22 | 1.9 | 1.1 | <0.1 | 0.9 |
| 2022-23 | 2.5 | 1.4 | <0.1 | 1.2 |
Notes for Figure 5.17
-
The full data series can be seen in the online tables.
-
Figures are rounded to the nearest £0.1 billion. As a result, components may not appear to sum.
Revisions
Figure 5.18 shows the revisions to the large businesses Corporation Tax gap since the publication of the ‘Measuring tax gaps 2023 edition’.
As compliance cases can take many years to close, the compliance yield of open cases is forecasted. Estimates are revised between publications due to differences between forecast and actual compliance yield.
For ‘Measuring tax gaps 2024 edition’ there have been methodological improvements which have caused revisions compared to the previous publication. These improvements are explained in the Methodological Annex.
Since 2014 to 2015 there have been revisions to the calculation of compliance yield used to derive the tax gap. Part of the revisions in 2015 to 2016 and 2016 to 2017 will reflect older, more complex enquiries closing for more compliance yield than forecasted. In 2017 to 2018 the tax gap was previously projected in ‘Measuring tax gaps 2023 edition’ and has now been replaced by the actual value. The later years are projections from 2017 to 2018 in line with large businesses Corporation Tax liability.
Figure 5.18: Revisions to large businesses Corporation Tax gap since the ‘Measuring tax gaps 2023 edition’
Notes for Figure 5.18
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The full data series can be seen in the online tables.
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MTG stands for ‘Measuring tax gaps’.