HMRC estimates the UK VAT gap at 6.6% of theoretical VAT liability, or £12.1 billion, in the 2024 to 2025 tax year (Measuring tax gaps 2026 edition, published 23 June 2026). E-invoicing is expected to help reduce it, mainly by cutting errors. But because the UK is not introducing real-time reporting in 2029, the effect will be more modest and slower than in countries where the tax authority sees every invoice.
The official numbers
All figures are from HMRC's official statistics, Measuring tax gaps 2026 edition.
| Measure | Figure |
|---|---|
| Total UK tax gap, 2024 to 2025 | 6.4% (£59.2 billion) |
| VAT gap, 2024 to 2025 | 6.6% (£12.1 billion) |
| VAT gap, 2005 to 2006 (first year measured) | 14.1% (£11.9 billion) |
| VAT share of the total tax gap, 2024 to 2025 | 20% |
| VAT gap due to non-payment, 2024 to 2025 | £2.4 billion |
| VAT uncertainty rating | "Medium" |
The VAT gap in £ billion over recent years:
| Year | 2020-21 | 2021-22 | 2022-23 | 2023-24 | 2024-25 |
|---|---|---|---|---|---|
| VAT gap | 7.4 | 10.0 | 16.0 | 10.3 | 12.1 |
HMRC stresses that the VAT gap "is the difference between 2 very large numbers", so the trend matters more than any single year. Estimates are also revised: the 2024 to 2025 figure was first put at 6.2% (£11.4 billion) in November 2025, then 6.5% (£11.9 billion) in March 2026, before the 6.6% in June 2026.
Where does the gap come from?
The VAT gap is calculated "top-down": HMRC estimates how much VAT should be paid based on national spending data, and compares it with receipts. That gives a total but "limited information on causes".
Across all taxes, HMRC's 2026 edition attributes the tax gap to behaviours including failure to take reasonable care (35%), error (16%) and evasion (12%). Criminal attacks account for 8%. When the consultation was launched in February 2025, the government said failure to take reasonable care and error together accounted for 22% of the VAT gap in 2022 to 2023.
That split explains why the government talks about e-invoicing mainly as an error-reduction tool.
How e-invoicing could help
Fewer manual errors. The government's February 2025 press release cited research that 80% of businesses globally key in supplier invoice data manually, with about 10% of that data containing errors. Structured invoices remove the retyping. The consultation response says that reducing errors in manual processes "will help to close the tax gap by making it easier for businesses to get their taxes right."
Consistent VAT data on both sides. Supplier and buyer record the same VAT amount, rate and VAT number, which should reduce mismatches between output tax and input tax claims.
Harder to fake invoices. Exchange over a network with identified participants makes fake or altered invoices harder, though not impossible.
A foundation for later. If HMRC later added reporting, the data would already exist in a standard form. See Will HMRC require real-time reporting?.
Why the effect may be limited at first
- No reporting to HMRC in 2029. HMRC will not receive invoice data as part of the mandate at launch, so it cannot match supplier and buyer records in real time.
- B2C is mostly outside. VAT invoices are generally not issued for consumer sales, and HMRC's VAT data show that more than two thirds of theoretical VAT liability comes from household spending.
- Fraud is not only invoices. Non-payment (£2.4 billion of the 2024 to 2025 VAT gap) and organised criminal attacks need other tools.
The comparison with clearance countries
Respondents to the consultation cited Italy's centralised system, reported to have generated €6 billion a year in extra revenue. That is a figure quoted by respondents, not an HMRC estimate. The government's response was that many centralised regimes were set up "in the context of tackling much more significant tax gaps than the UK's, which is comparatively low." See Clearance vs decentralised.
How much will e-invoicing raise?
Not published. The consultation said any Exchequer impact would be estimated after the policy was designed and "subject to scrutiny by the Office for Budget Responsibility." Budget 2025 included e-invoicing in its package to modernise the tax system, alongside measures that, taken together, raise £10 billion a year by 2029 to 2030 from closing the tax gap. We have not found a separate published revenue figure for the e-invoicing mandate itself. Treat any number you see quoted with caution unless it comes from HMRC or the OBR.
What this means for your business
For a compliant business, the VAT gap is not your problem, but the remedies affect you. Expect stricter data validation on invoices, more automated VAT checks, and HMRC prompts in VAT software from April 2027, as announced at Budget 2025. The upside is fewer errors in your own VAT returns and fewer queries.
What to do now
- Clean up the data that drives VAT: customer and supplier VAT numbers, VAT category codes, and reverse charge flags. See UK VAT category codes in Peppol.
- Watch for an Exchequer estimate in the Budget 2026 documents on 28 October 2026.
- Read the mandate guide for the wider picture.
Frequently asked questions
What is the UK VAT gap?
HMRC's Measuring tax gaps 2026 edition estimates the VAT gap at 6.6% of theoretical VAT liability, or £12.1 billion, in the 2024 to 2025 tax year.
Will e-invoicing close the VAT gap?
The government says the mandate will support efforts to close the tax gap, mainly by reducing errors. It has not published a separate estimate of how much VAT e-invoicing will raise, and without real-time reporting HMRC will not see invoices directly at launch.
Why didn't the UK choose a system like Italy's?
The government said many countries with centralised systems were tackling much larger tax gaps than the UK's, which it described as comparatively low.
Spotted a mistake? Report an error. einvoices.uk is an independent publication and is not affiliated with HMRC. Details of the mandate may change; check the sources and official GOV.UK guidance before acting.