ÌìÃÀÓ°Ôº

Tax gap by behaviour

The tax gap is composed of a range of customer behaviours:

• avoidance
• criminal attacks
• error
• evasion
• failure to take reasonable care
• hidden economy
• legal interpretation
• non-payment

A definition of each of these behaviours can be found in Chapter L of the ‘Methodological annex’.

The estimates provide broad indicators of the customer behaviours contributing to the tax gap. They are illustrative and may not fully reflect how behaviours are changing over time.

Due to methodological improvements introduced in ‘Measuring tax gaps 2023 edition’ some of these estimates do not extend back to 2005 to 2006. For ‘Measuring tax gaps 2025’ edition we have made further updates to the assumptions used to estimate the behavioural breakdown of the tax gap. Details of the changes for estimating non-payment and avoidance can be found in the ‘Methodological annex’.

Main findings

Figure 7.1 shows an illustrative tax gap breakdown into behaviours between 2019 to 2020 and 2023 to 2024.

In 2023 to 2024, failure to take reasonable care accounts for the largest proportion of the tax gap at 31%, increasing its share of the tax gap from 26% in 2019 to 2020.

Error and evasion account for the second and third largest proportions at 15% and 14% respectively of the overall tax gap in 2023 to 2024.

The proportion of the tax gap due to legal interpretation has fluctuated slightly since 2019 to 2020 and was 12% in 2023 to 2024.

The proportion of the tax gap due to criminal attacks reduced from 12% in 2019 to 2020 to 9% in 2023 to 2024.

The proportion of the tax gap due to non-payment has remained broadly stable and accounted for 12% of the total tax gap in 2023 to 2024.

Avoidance is the smallest proportion of the tax gap at 1%, and hidden economy is around 5% of the overall tax gap in 2023 to 2024.

Figure 7.1 Tax gap by customer behaviour – share of tax gap, 2019 to 2020 to 2023 to 2024

Notes for Figure 7.1:

1. The full data series can be seen in the online tables.

2. Figures may not sum due to rounding.

Revisions

In ‘Measuring tax gaps 2023 edition’ we updated some assumptions used to estimate the behavioural breakdown of the tax gap. These methodological improvements based on the latest data and operational insight do not extend back to 2005 to 2006.

The tax gap breakdown by behaviour is calculated using management information, assumptions and expert judgement combined with projections from historical data.

Figure 7.2 shows the revisions to the tax gap by customer behaviour since the ‘Measuring tax gaps 2024 edition’. The main changes are a reduction in the percentage of the tax gap arising from avoidance and an increase in the percentage of the tax gap arising from non-payment.

For ‘Measuring tax gaps 2025 edition’ we improved the methodology to estimate non-payment from 2018 to 2019 in Corporation Tax and Income Tax, NICs, Capital Gains Tax in Self Assessment and PAYE. The new methodology is an estimate of eventual non-payment attributable to the year of tax debt creation. This aligns to the VAT non-payment methodology introduced in ‘Measuring tax gaps 2023 edition’. These methodological improvements do not extend back beyond 2018 to 2019.

For ‘Measuring tax gaps 2025 edition’ we have also made a change to our methodology for the avoidance tax gap estimate for Income Tax, NICs and Capital Gains Tax and revised our time-series back to 2015 to 2016.

Updates to the behavioural breakdowns for avoidance and legal interpretation in the large business Corporation Tax gap have been included in the revisions.

More details can be found in the ‘Methodological annex’.

Figure 7.2: Revisions to the tax gap percentage share by customer behaviour since the ‘Measuring tax gaps 2024 edition’.

Notes for Figure 7.2:

1. MTG stands for ‘Measuring tax gaps’.

Avoidance

Avoidance involves bending the rules of the tax system to try to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter, but not the spirit, of the law.

Main findings

The avoidance tax gap is estimated to be £0.7 billion in 2023 to 2024. About £0.2 billion of this relates to marketed avoidance schemes made up of Income Tax, NICs and Capital Gains Tax. The avoidance tax gap estimates reflect the laws that were in place at the time and do not include any subsequent changes to the tax law to prevent further use of avoidance.

Figure 7.3 shows how the avoidance tax gap is split by type of tax from 2019 to 2020 to 2023 to 2024. In 2023 to 2024, around half of the avoidance tax gap (£0.3 billion) is attributed to Corporation Tax, with £0.2 billion attributed to Income Tax, NICs and Capital Gains Tax, £0.1 billion to VAT and £0.1 billion to ‘other taxes’.

Table 1.5 in the online tables shows the breakdown of the avoidance tax gap by type of tax from 2019 to 2020, to 2023 to 2024.

Figure 7.3: Avoidance tax gap by type of tax, 2019 to 2020 to 2023 to 2024 (£ billion)

Notes for Figure 7.3:

1. The full data series can be seen in the online tables.

2. Figures may not sum due to rounding.

3. IT, NICs and CGT stands for ‘Income Tax, National Insurance contributions and Capital Gains Tax’.

4. ‘Other taxes’ includes ‘other taxes, levies and duties’ (Aggregates Levy, Air Passenger Duty, Customs Duty, Climate Change Levy, Digital ÌìÃÀÓ°Ôº Tax, Insurance Premium Tax, Plastic Packaging Tax, and Soft Drinks Industry Levy), Landfill Tax, stamp taxes, and Inheritance Tax.