Glossary · UK
What is Tax Gap (HMRC)?
HMRC's estimate of the difference between tax theoretically owed and tax actually collected; £39.8bn in 2022/23.
Full Definition
The tax gap is the difference between the amount of tax HMRC estimates should be collected under the law and what is actually paid. HMRC publishes annual estimates; for 2022/23 the gap was £39.8bn, representing 4.8% of theoretical tax liabilities. The gap arises from several sources: failure to take reasonable care (the largest category), criminal attacks, legal interpretation differences, non-payment, error, hidden economy activity, and avoidance. HMRC uses the gap to prioritise compliance resources and measure the effectiveness of enforcement. Reducing the tax gap is a standing government objective and informs policy decisions on Making Tax Digital, increased HMRC staffing, and penalties.