HMRC publishes 2012-13 tax gap

The tax gap, which is the difference between the amount of tax due and the amount collected, was 6.8% of tax liabilities, or £34 billion, in 2012-13.

This compares with a revised estimate of 6.6% in 2011-12. The long-term trend is downward, with the tax gap falling from 8.5% in 2005-06, HM Revenue and Customs (HMRC) confirmed today.

Financial Secretary to the Treasury David Gauke said:

“Since 2010-11 the percentage tax gap has stayed lower than at any point under the previous government, saving the country £4 billion. Today’s figures show that there’s still more work to do but our continued drive to tackle avoidance means that avoidance is down.

“In 2012-13 HMRC achieved a compliance yield of £20.7 billion, rising to a record breaking £23.9 billion in 2013-14.

“The UK has one of the lowest tax gaps in the world but HMRC will continue to deploy its resources and skills to maintain the downward pressure that has proved so effective in recent years.”

The tax gap also includes the tax owed by companies that have become insolvent – making it uncollectible, as well as low level errors made in tax returns. The part of the gap due to tax avoidance fell from £3.4 billion to £3.1 billion.

The tax gap overall shows a downward trend from 8.5% in 2005-06 (the first year it was compiled) to 6.6% in 2011-12 (revised down from 7% in last year’s publication) and 6.8% in 2012-13.

Since 2005-06, this fall from 8.5% to 6.8% has delivered an additional £43 billion in cumulative tax collected.

The key impacts on the 2012-13 tax gap came from VAT and illicit tobacco, but provisional data for 2013-14 suggests the VAT gap is falling back to earlier levels.

Since 2000, HMRC has reduced the illicit cigarette market by around 40% and, as part of HMRC’s 2010 Spending Review settlement, additional funding was made available to tackle illicit tobacco. Last year some 328 people were prosecuted, £518.3 million revenue losses prevented and over 1.4 billion illicit cigarettes seized together with 330 tonnes of hand rolling tobacco.

 
Notes to Editors

1. Measuring Tax Gaps 2014 is available from https://www.gov.uk/government/statistics/measuring-tax-gaps

2. The percentage tax gap increased marginally from 6.6% in 2011-12 to 6.8% in 2012-13. The value of the tax gap also increased slightly, from £33 billion to £34 billion.

3. The £4 billion saving is worked out as follows:
- the tax gap in 2009-10 was 7.0% of tax liabilities
- HMRC calculated a hypothetical 7.0% tax gap for 2010-11, 2011-12 and 2012-13
- HMRC deducted the actual tax gap for those three years; the saving over the three years was £4 billion.

4. The £43 billion cumulative figure is worked out as follows:
- the tax gap in 2005-06 was 8.5% of tax liabilities HMRC calculated a hypothetical 8.5% tax gap for the seven years from 2006-07 to 2012-13.
- HMRC deducted the actual tax gap for those seven years, and the difference was £43 billion.

5. The tax gap is calculated using a range of statistical techniques endorsed by the International Monetary Fund.

6. The tax gap figure for 2011-12 has been revised down from the estimate published in October 2013, which put it at 7% (£35 billion). This is because of continued improvements in reporting and updated data.

7. Each year the tax gap is subject to revision due to:
- new or revised economic data
- new data on HMRC’s operations, such as audit cases settled and new data on tax at risk in legal challenges
- methodology changes that improve the estimate.

8. Early estimates indicate the increase in 2012-13 may be temporary, with the Office for Budget Responsibility’s forecast for the VAT Gap in 2013-14 (published at Budget 2014) showing a return to the 2011-12 level.

9. HMRC is also today publishing estimates of the 2013-14 tobacco tax gap at https://www.gov.uk/government/statistics/tobacco-tax-gap-estimates

10. Follow HMRC Press Office on Twitter @HMRCpressoffice

11. HMRC’s flickr channel www.flickr.com/hmrcgovuk