Official Statistics

Tax relief statistics - additional cost estimates (May 2023)

Updated 5 December 2024

Coverage: United Kingdom

Theme: The Economy

Release: 25 May 2023

Next Release: Autumn 2023

Frequency of Release: Bi-annual

Media Contact: [email protected]

Statistical Contact: Tax Reliefs Analysis and Coordination Team, [email protected]

Website: https://www.gov.uk/government/statistics/main-tax-expenditures-and-structural-reliefs

1. About this publication

This publication sets out new information on the costs of tax reliefs where the cost had previously been unavailable. It provides new single-year static cost estimates for 5 non-structural tax reliefs and one tax relief that has been costed but the cost estimate cannot be published due to statistical disclosure rules.

These reliefs are listed in the download table accompanying this bulletin and in the Results section.

1.1 Structural and non-structural tax reliefs

Many tax reliefs are integral parts of the tax system - like the Income Tax personal allowance. These reliefs have various purposes, such as to define the scope of the tax or calculate income or profits correctly. These are classified as ‘structural tax reliefs’.

Other reliefs are actively designed to help or encourage particular types of individuals, activities or products in order to achieve economic or social objectives. These are classified as ‘non-structural’ tax reliefs.

The split between ‘structural tax reliefs’ and ‘non-structural tax reliefs’ is not always straightforward, and these categorisations remain under continuous review. Many reliefs have both structural and non-structural purposes. For example, capital allowances can provide relief for commercial depreciation as well as an element of accelerated relief. While the former can be regarded as a structural part of the tax system, the latter is non-structural as it provides additional benefit to business.

Where reliefs combine both structural and non-structural elements, they have been allocated to the category deemed most dominant.

The previous release from January 2023 included:

• multi-year cost estimates for structural reliefs
• multi and single-year cost estimates for non-structural reliefs (including all cost estimates for previously uncosted reliefs published up to January 2023)
• lists of tax reliefs where cost estimates are unavailable for:
  • a subset of structural tax reliefs
  • non-structural reliefs up to January 2023

The multi-year cost estimates provide costs from outturn years 2017 to 2018 up to 2021 to 2022 and forecasts for the tax year 2022 to 2023. Single-year cost estimates are given for the latest year that data was available when the costing was undertaken.

2. Progress against Public Accounts Committee (PAC) recommendations

These new cost estimates are the latest from an HMRC project to increase transparency on the cost of non-structural tax reliefs and deliver commitments made to PAC in HMRC’s letter of 30 April 2019. We have now met the original PAC recommendations and communicated this to PAC in June 2022.

2.1 Progress on costing previously uncosted reliefs since 2019

Outcome	May 2020	October 2020	May 2021	December 2021	May 2022	January 2023	May 2023	Total
Cost estimate published	45	26	29	17	15	10	5	147
Cost estimate withheld due to dominance and disclosure rules	0	11	12	2	0	1	1	27
Unable to estimate cost	2	3	4	5	5	3	0	22
Total	47	40	45	24	20	14	6	196

Previous versions of the tax relief statistics can be found on the tax reliefs statistics collection website

There are currently 339 non-structural tax reliefs and, at the start of this project, around 240 non-structural reliefs had no cost information available. Since 2019, including this publication, we have published:

• new cost estimates for 147 of these reliefs
• established that the cost of 27 reliefs cannot be published because of statistical rules including those around disclosure
• found that for 22 reliefs we do not have sufficient data to estimate the cost

There are now 38 uncosted non-structural reliefs remaining. There is more uncertainty linked to these estimates and it is becoming harder to find suitable data sources to derive reliable estimates.

3. Interpretation of estimates

How to interpret these figures:

• These figures are estimates of the amount of relief which is claimed and subsequently granted each year

• These estimates do not represent the gain to the exchequer should a relief be abolished

• These estimates do not account for interactions between reliefs and therefore should not be summed, as the use of a given relief can be highly dependent on the use of another and also wider economic impacts

• The estimates are in nominal £ million

• The uncertainty rating provided should be considered when using these estimates

• All costs are on an accruals basis unless otherwise stated, i.e. they represent the effects on the tax liabilities for each year, not receipts in each year

  • Some costings are on a national accounts basis (NAB) which represents time-shifted cash

• Please refer to the supplementary notes on the tables for additional explanations for specific reliefs

The estimates are static cost estimates, which means that they do not explicitly model behavioural responses which could result from changes to the relief.

In practice, if a relief was withdrawn, taxpayers’ behaviour would often change so the additional tax collected from withdrawing a relief could be very different from the estimate shown. For example, taxpayers may have a choice of which reliefs to claim, and if one were removed, they could claim the other.

These figures should be regarded as broad estimates, as the loss of revenue from a tax relief cannot be directly observed so the estimates are often based on assumptions. Some tax reliefs are used by a small number of taxpayers. For these reliefs, publishing a cost estimate could possibly lead to individual taxpayers being identified - in these cases we do not report the cost and instead list them as disclosive.

This publication has the experimental statistics label, which highlights that the statistics are newly developed and the publication is undergoing evaluation. Due to data limitations, cost estimates in this publication have a higher average degree of uncertainty than in the other statistical publications in the HMRC Annual Tax Relief Statistics release. As a result, each estimate has been given an uncertainty rating. More information on experimental statistics from the Office for Statistics Regulation can be found in Experimental statistics – official statistics in development.

4. Results

4.1 Single-year cost estimates (figures given in £ millions):

Name	Tax type	Year	Cost estimate	Uncertainty rating
Pensions related to employment and disability	Income Tax	2020 to 2021	170	Medium
Direct supplies and self supplies of qualifying electricity from good quality Combined Heat and Power (CHP)	Climate Change Levy	2020 to 2021	35	Medium
Visiting Forces Relief: motor vehicles	VAT	2020 to 2021	10	Medium
Funds held for reducing the National Debt	Income Tax and Corporation Tax	2020 to 2021	Disclosive	N/A
Visiting Forces Relief: gifts	VAT	2021 to 2022	Negligible	Medium
Diplomatic Privilege Relief	VAT and Customs	2021 to 2022	Negligible	High

The associated download table published with this bulletin also provides additional information on each relief. Reliefs that apply to more than one tax will be listed in the ‘Multiple tax types’ tab of the download.

5. Methodology and data quality

For many reliefs, HMRC does not require information on the use of the relief to be submitted on tax returns as this is not needed for establishing the liability to tax. This may be because the relief is an exemption rather than a deduction from income or profits. In such cases, HMRC uses suitable external information sources, if available, to estimate its cost.

The reliefs in this publication were previously uncosted, which in many cases was due to data limitations. Since there is no administrative data readily available we have used suitable publicly available external data, or data from other government departments where possible.

Where we have used external data, the available data is not always targeted or comprehensive. In many cases, relevant data is not directly available and we have had to rely on proxy data and/or assumptions. We have therefore provided an uncertainty rating with each cost estimate. Our assessment of the uncertainty level is broad-based and considers the quality of data used and the assumptions made:

Uncertainty	Data and modelling approach
Low	High quality, targeted and comprehensive data from administrative or external sources. Assumptions have strong underlying rationale and can be verified using good quality independent data.
Medium	Basic data, incomplete in a few instances, which may be from external sources. Some assumptions are used and can be verified only to a limited extent.
High	Very little, incomplete or poor quality data. Largely assumption-based and difficult to verify.

In some cases, the cost of reliefs cannot reliably be estimated because there is insufficient available information and the cost of collecting the necessary data or the burden imposed on taxpayers would be disproportionate to the potential benefits of being able to produce a cost estimate. If no administrative or external data source exists, then in general HMRC avoids increasing taxpayers’ administrative burdens by requiring information to be submitted solely for statistical purposes.

Cost estimates where the cost is zero or less than £3 million are shown as negligible. The cost estimates have been rounded according to their size, as follows:

• under £100 million – rounded to the nearest £5 million

• over £100 million but under £1 billion – rounded to the nearest £10 million

• over £1 billion – rounded to the nearest £100 million

The aim of this publication is to increase transparency about the cost of non-structural tax reliefs where cost estimates were previously unavailable. Therefore, although there is uncertainty surrounding the estimates, we have published cost estimates wherever possible, unless the estimate has the potential to be misleading to users.

When considering whether a relief cost estimate would be suitable for publication, we considered the uncertainty rating (sensitivity to specific assumptions) and the likely degree of error around the estimate including potential error size (both absolute and relative to the size of the tax).

5.1 Quality Assurance

We are committed to continuously improving the official statistics we publish. We have in place checks to minimise the risk of error and quality assurance review processes with a clear audit trail. Each section is scrutinised by analytical staff working on each of the areas. The publication is also peer reviewed by different team members and overseen by senior analysts including the team’s senior statistician.

In May 2022 we published a new background quality report for the tax relief statistics.

6. User Engagement and Future Development

HMRC aims to continuously improve its understanding of the cost of tax reliefs. We welcome users’ views, therefore if you have any comments on this publication please get in touch using the statistical contacts provided at the top of this bulletin. We also invite users to provide us with any data they hold which could help us to estimate the cost of any of the uncosted non-structural tax reliefs listed in the January 2023 publication.

This is the seventh publication that reports on new cost estimates as part of a project to provide more information on previously uncosted reliefs. Analytical resource has been prioritised to cost non-structural reliefs. We have considered a range of criteria in prioritising within the non-structural reliefs, including size, complexity, data availability and available resourcing.

We plan to add cost estimates for further tax reliefs and will continue to expand coverage over the next 12 months. In the medium-term, HMRC will continue to review and improve the tax relief statistics collection. We published the first set of new single-year cost estimates within the established annual tax relief statistics publication in October 2020.

This publication has been produced as part of the first stage of the tax reliefs costing project, which involves a comprehensive review of currently available data to provide indicative estimates for tax reliefs. We will continue to progress this stage of the project over the course of 2023. As we are nearing the end of the first stage of the project, the remaining estimates have a higher level of uncertainty given the limited data available to cost them.

We are also in the process of reconsidering the purpose and content of the Spring experimental statistics publication to make sure that it provides our users with added value. We would welcome feedback on any developments that could be of interest.

The second stage of the project identifies those reliefs where HMRC would need to collect or purchase additional data to estimate the costs of the reliefs, and HMRC and HM Treasury will weigh the costs of acquiring data against the benefits of generating further estimates.