Small Businesses Account for Majority of Tax Gap

HM Revenue and Customs (HMRC) have published statistics showing the tax gap – the difference between the amount of tax that should, in theory, be paid to HMRC and the amount actually paid. The statistics indicate that small businesses account for a majority of the tax gap.

HMRC estimate that the tax gap in 2023/24 was £46.8 billion, or 5.3 per cent of the total tax due. The tax gap from small businesses has increased over the last five years, from 48 per cent of the overall tax gap in 2019/20 to 60 per cent in 2023/24. Medium-sized and large businesses accounted for 9 per cent and 12 per cent of the tax gap respectively.

Corporation tax accounted for 40 per cent of the overall tax gap, with the difference between the amount of Corporation Tax due and the amount paid estimated to be 15.8 per cent. VAT accounted for 19 per cent of the tax gap, with the amount paid estimated to be 5 per cent lower than the amount due.

The most common reason contributing to the tax gap was failure to take reasonable care, which accounted for 31 per cent of the tax gap, followed by errors at 15 per cent.