GOV.UK has published details of the most recent measurement of the tax gap for 2021-2022.
What is the tax gap?
The tax gap is measured by comparing the net tax total theoretical liability with tax actually paid. This is comparing the amount of tax HMRC expected to receive in the UK and the amount HMRC actually received.
The figures
The tax gap is estimated to be 4.8% of total theoretical tax liabilities, or £35.8 billion in absolute terms, in the 2021 to 2022 tax year.
Total theoretical tax liabilities for the year were £739.3 billion.
There has been a long-term reduction in the tax gap as a proportion of theoretical liabilities: the tax gap reduced from 7.5% in the tax year 2005 to 2006 to 4.8% in 2021 to 2022 – remaining low and stable between the years 2017 to 2018 and 2021 to 2022.
Criminal activity and evasion accounted for £4.1billion loss in tax collected.
30% of all underpayments of tax were due to a failure to take reasonable care, while 13% of instances were down to evasion.
A massive 56% of the tax gap is made up by small businesses (up from 40% of the total in 2017-18). Whether this is down to HMRC improving collection from large businesses or an increasing failure to crack down on small business is a moot point. It remains to be seen how HMRC react to this new information, but experience insists that small businesses may expect increased attention for the authorities.
The VAT gap
VAT represents 21% of the overall tax gap.
The VAT tax gap is 5.4%.
The absolute VAT gap is £7.6 billion.
The VAT gap has reduced from 14.0% of theoretical VAT liability in 2005 to 2006 to 5.4% in 2021 to 2022.
More than two thirds of the theoretical VAT liability was estimated to be from household consumption. The remainder came from the expenditure by businesses that supply goods and services where the VAT is non-recoverable (they are exempt from VAT), and from the government and housing sectors.
Information on the method used to estimate the VAT gap is here for those interested (I don’t imagine that there will be that many…).
So, £7.6 millions of VAT is missing. That seems an awful lot.