HMRC tax gap rises to £46.8bn as Corporation Tax compliance deteriorates
HMRC tax gap rises to £46.8bn as Corporation Tax compliance deteriorates
Commenting on today's release of HMRC's tax gap statistics, Dawn Register, Head of Private Client Services at BDO LLP said:
"Today's figures show the UK tax gap has increased to £46.8 billion in 2023-24, representing 5.3% of total theoretical tax liabilities. While HMRC still collects 94.7% of all tax due, this represents a concerning uptick from the 4.8% gap we saw in 2022-23.
"The most alarming trend is the deterioration in Corporation Tax compliance. The Corporation Tax gap has ballooned to 15.8% of theoretical liabilities, making it the single largest component of the tax gap at 40% of the total. This is a dramatic increase from the 24% share Corporation Tax represented of the tax gap just five years ago in 2019-20.
"Small businesses continue to present the greatest compliance challenge, accounting for 60% of the total tax gap. This proportion has increased significantly from 48% in 2019-20, suggesting that compliance pressures on smaller enterprises may be intensifying.
"Given that small businesses continue to be the largest proponent of the tax gap we consider that HMRC should focus on a clear strategy and allocate specific resources to tackle evasion in small businesses. There have been attempts in the past few years to do so, HMRC’s focus on Research and Development for example, however, more should be done. We note that the NAO published a report last year setting out that HMRC lacked an effective strategic response to tax evasion growing among small businesses.
"On a more positive note, the VAT gap has continued its long-term improvement, falling to 5.0% - for context it stood at 13.8% in 2005-06. This demonstrates that sustained compliance efforts can deliver results over time and something we hope can be replicated with other areas of tax.
"These figures provide crucial context for the Government's compliance strategy announced in the Spring Forecast. The decision to increase late payment penalties by 50% and invest in 500 additional compliance officers reflects the scale of the challenge HMRC faces. We would hope that the recent investment in staff by HMRC will help reduce the tax gap in the next few years.
"With Corporation Tax compliance deteriorating and small business non-compliance rising, businesses should expect increased scrutiny from HMRC. The tax authority has stated that £1 spent on compliance delivers a £22 return on investment, making enhanced enforcement activity inevitable."
ENDS
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