Latest tax gap sets another record

Tax gap hits record £59.2bn as small businesses account for 62% of unpaid tax

The tax gap for 2024/25 sets another record at £59.2 billion, with small businesses accounting for some 62% of the taxes not collected.

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid.

Upward trend

The tax gap for 2024/25 represents around 6.4% of the total tax due. Although the tax gap has been higher historically, it has generally increased throughout recent years; for example, for 2021/22, it was 5.7%.

HMRC, as is normally the case, has revised figures for previous years. When figures were released for 2023/24, the tax gap was shown as generally declining. However, the latest figures show the tax gap for 2023/24 at 6.0%, rather than the previous 5.3%, an increase of £6 billion.

Small businesses under scrutiny

In 2024/25, small businesses accounted for 62% of the tax gap, an increase of four percentage points since 2020/21. Such firms are the main culprits here, with HMRC estimating that around 45% of the corporation tax owed was not collected. No surprise then that identity verification has recently been introduced for company directors and persons with significant control.

Behaviour

The largest proportion of the tax gap comes from failure to take reasonable care. This is currently 35% – nearly £21 billion – increasing from 30% of the tax gap in 2020/21:

• HMRC blames failure to take reasonable care on a taxpayer’s carelessness, negligence, or poor record-keeping, but the increasing complexity of the tax system and the deterioration in HMRC customer service also play a part.
• Add in taxpayer errors and more than half of the tax gap is now down to taxpayers who probably regard themselves as tax-compliant.

Actual evasion of tax only accounts for 12% of the tax gap, with tax avoidance standing at just 1% of the total. HMRC’s summary details of the latest tax gap figures can be found here.

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