The VAT gap is measured by comparing the net VAT total theoretical liability (VTTL) with actual receipts (this is comparing the amount of VAT HMRC expects to receive in the UK and the VAT HMRC actually receives). The VAT gap methodology uses a ‘top-down’ approach.
Preliminary estimate of the VAT gap for tax year 2020 to 2021
The table below gives the headline figures used to estimate the Preliminary 2020 to 2021 VAT gap estimate.
| Financial year | Net VAT Total Theoretical Liability | HMRC Net VAT receipts | Net VAT receipts related to Net VAT Total Theoretical Liability in 2020 to 2021 | VAT gap (point estimate) | VAT gap (per cent) |
|---|---|---|---|---|---|
| 2020 to 2021 | £130.3bn | £101.5bn | £120.5bn | £9.8bn | 7.5 |
The amounts calculated are rounded to the nearest £0.1 billion and the VAT gap as a percentage has been rounded to the nearest 0.1 per cent. Net VTTL and net VAT receipts are expressed net of payments and repayments. A portion of the VTTL estimate is projected rather than actual expenditure.
The 2020 to 2021 net receipts figure in the VAT gap model includes an adjustment for the amount of payments that were deferred in 2020 under the VAT Payments Deferral Scheme – a key fiscal support measure in the government’s response to Covid-19.
This adjustment excludes deferrals that were estimated to have been made in March 2020 as they have been already accounted for as part of the VAT gap calculation in the previous year (2019 to 2020) and captures the deferred liabilities related to 2020 to 2021 that will be paid after March 2021 under the VAT Deferral New Payment Scheme.
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