The tax gap for the fiscal year 2024/25 has reached a new high of £59.2 billion, with small businesses responsible for approximately 62% of the uncollected taxes.
The tax gap refers to the disparity between the tax that should theoretically be paid to HMRC and the actual amount paid.
Upward trend
The tax gap for 2024/25 constitutes about 6.4% of the total tax owed. While the tax gap has historically been higher, it has generally shown an upward trend in recent years; for instance, it was recorded at 5.7% for 2021/22.
HMRC has, as is customary, updated figures for prior years. When the figures for 2023/24 were published, they indicated a general decline in the tax gap. However, the most recent data reveals that the tax gap for 2023/24 is now at 6.0%, an increase from the previously reported 5.3%, amounting to an additional £6 billion.
Small businesses under scrutiny
In 2024/25, small businesses represented 62% of the tax gap, marking a four percentage point rise since 2020/21. These businesses are primarily responsible, with HMRC estimating that around 45% of the corporation tax owed remains uncollected. It is therefore not surprising that identity verification measures have recently been implemented for company directors and individuals with significant control.
Behaviour
The largest share of the tax gap arises from a failure to exercise reasonable care, currently accounting for 35%—nearly £21 billion—up from 30% in 2020/21.
HMRC attributes this failure to a taxpayer’s carelessness, negligence, or inadequate record-keeping, but the growing complexity of the tax system and a decline in HMRC’s customer service also contribute to the issue.
When taxpayer errors are included, more than half of the tax gap is attributed to taxpayers who likely consider themselves compliant with tax regulations.
Actual tax evasion constitutes only 12% of the tax gap, while tax avoidance represents a mere 1% of the total. HMRC’s summary details of the latest tax gap figures can be found here.