Glossary · UK
What is Tax Gap?
The difference between the total tax theoretically owed and the amount actually collected by HMRC in a given year.
Full Definition
The tax gap is HMRC's estimate of the difference between the amount of tax that should, in theory, be paid to HMRC and the amount that is actually paid. HMRC publishes updated tax gap figures annually, typically in June, covering all the main taxes: Income Tax, NI contributions, VAT, Corporation Tax, and others. The UK tax gap for 2022/23 was estimated at £39.8 billion, representing 4.8% of theoretical tax liabilities -- broadly in line with historic levels. The tax gap arises from several causes: failure to take reasonable care, avoidance, evasion, criminal attack, hidden economy activity, legal interpretation differences, non-payment, and error. VAT and Income Tax from small businesses (including the self-employed) tend to account for the largest absolute components. HMRC uses the tax gap as a strategic tool to target compliance resources where they will have the greatest impact. The measurement methodology has evolved over time and figures are revised as new data becomes available. The tax gap does not include taxes owed but not yet assessed or taxes that HMRC has decided not to pursue on proportionality grounds.