HMRC estimates that £46.8 billion of tax was unpaid in the 2023-2024 tax year - and it says the largest share is due to small business non-compliance.
The UK tax gap is the difference between the amount of tax that is expected to be paid and what has been actually paid. According to new figures from the UK tax body HMRC, the tax gap for the 2023 to 2024 tax year is £46.8 billion, representing a gap of about 5.3%.
While £46.8 billion was unpaid in that year, HMRC collected £829.2 billion, representing 94.7% of all tax due. Now, the government has announced plans to raise a further £7.5 billion through its measures to close the tax gap. It says the largest share of the gap is due to small business non-compliance.
HMRC estimates the tax gap every year, using the most up-to-date information available; however, figures may be revised as more data becomes available. For instance, the tax gap for the 2022 to 2023 tax year has been revised upwards from 4.8% (£39.8 billion) to 5.6% (£46.4 billion). This is due to "improvements in data quality, the availability of more up-to-date information and methodology changes", according to the government.
Why don't businesses pay the tax they owe?
The key findings from this year's calculations show that small businesses represent the largest proportion of the tax gap (60%). Corporation Tax accounts for 40% of the total tax gap. Failure to take reasonable care (31%), error (15%) and evasion (14%) are among the main behavioural reasons for the overall tax gap.
"Every pound of tax uncollected puts a greater burden on honest taxpayers and deprives our public services of vital funding. In our first year in office, we have set out plans to raise an extra £7.5 billion through the most ambitious ever package to close the tax gap. We are determined to go further and faster to make sure everyone pays their fair share." James Murray MP, exchequer secretary to the Treasury.
HMRC says that the Making Tax Digital (MTD) programme is helping to reduce the element of the tax gap caused by error and failure to take reasonable care. Up to the end of the 2029 to 2030 tax year, MTD for VAT is predicted to deliver more than £4 billion in tax revenue by reducing errors.
MTD for Income Tax will be introduced from April 2026 and is expected to generate £1.95 billion in additional tax revenue by the end of the 2029 to 2030 tax year.
The government has also announced an extra £1.7 billion for HMRC over four years to fund an additional 5,500 compliance and 2,400 debt management staff.
Written by Rachel Miller.