Rise in missing VAT collections to £11.9bn 2024/5 from £8.9bn 2023/4
- The UK VAT gap has increased to 6.5% (£11.9bn) in HMRC’s second estimate for 2024–25.
- This represents a rise from the 5% (£8.9bn) gap reported for 2023–24.
- However, the figure remains below the 7.8% (£13.1bn) level seen in 2022–23.
HMRC has published its second estimate of the UK VAT gap for the 2024–25 tax year, showing that the gap between the VAT expected to be collected and the VAT actually received has widened compared with last year.
The VAT gap is HMRC’s measure of lost VAT revenue. It compares the VAT Total Theoretical Liability (VTTL), which is the amount of VAT that should be collected if all taxpayers complied fully, with actual VAT receipts.
The EU VAT Gap say rise too in it’s latest estimate. This rose €27bn to €128bn for 2023, the latest figures.
For 2024–25, HMRC estimates:
- Net VTTL: £182.6 billion
- Net VAT receipts: £170.9 billion
- VAT gap: £11.9 billion (6.5%)
This represents a significant increase compared with the 2023–24 estimate, when the VAT gap stood at 5% (£8.9 billion). In percentage terms the gap has therefore grown by 1.5 percentage points, while the estimated revenue loss has increased by around £3 billion.
Revision from the preliminary estimate
The latest figure is also higher than HMRC’s preliminary estimate for the same year. The initial estimate, published at Autumn Budget 2025, suggested a VAT gap of 6.2% (£11.4 billion).
The new estimate revises the gap upwards by 0.3 percentage points, equivalent to £0.5 billion.
HMRC states the revision reflects new data releases from the Office for National Statistics, including:
- ONS Blue Book 2025 national accounts data
- ONS Consumer Trends data for Q3
These datasets feed into the calculation of the VAT Total Theoretical Liability, which underpins the VAT gap methodology.
How the VAT gap is calculated
HMRC estimates the VAT gap using a top-down methodology. This approach starts with national expenditure data and estimates how much VAT should be generated from economic activity
The calculation combines:
- Household consumption data (around 70% of the VTTL)
- Non-household expenditure, including government, charities and exempt sectors (around 30%)
Some elements of the estimate remain forecast rather than final data, meaning further revisions are expected as more economic statistics become available.
Further updates expected
HMRC publishes three VAT gap estimates each year:
- Preliminary estimate in the Autumn Budget
- Second estimate in the following spring
- Final estimate in the annual Measuring tax gaps publication in summer
The final estimate for 2024–25 will be published in summer 2026, when HMRC releases the Measuring tax gaps 2026 edition. However, even that release will still include some forecast components, with full historical revisions expected later as new national accounts data becomes available.
What the increase may signal
The rise in the VAT gap highlights the continuing challenge of closing the gap between expected and actual VAT receipts. While the gap remains below the higher level seen in 2022–23, the increase from last year may reinforce the focus on digital reporting, compliance controls and transaction transparency.
Across Europe, many tax authorities are pursuing real-time digital reporting and e-invoicing systems to reduce VAT leakage. Although the UK has not yet introduced such mandates – UK e-invoicing 2029 is planned – the trend towards greater digital oversight of VAT transactions is continuing to shape the global tax compliance landscape.
