HMRC data shows tax gap soars to nearly £60bn
HMRC data shows tax gap soars to nearly £60bn
HMRC's latest tax gap estimate for the 2024-25 tax year - which reports the gap that exists between total theoretical tax liabilities and what is actually collected by HMRC - has increased to 6.4%. This represents a total tax gap of £59.2bn, compared to the £52.8bn for 2023/24 (revised up from the estimate of £46.8bn reported in June last year).
Dawn Register, Head of Private Client Services at BDO LLP, said: “Today's figures show that HMRC has collected 93.6% of all tax due during the period, meaning an estimated 6.4% of tax remains uncollected. This is the highest tax gap reported since 2016 estimates and equates to a huge sum, £59.2 billion.
“The data highlights a growing divide in tax compliance. While HMRC’s large business directorate has a handle on large business compliance, doubling the amount of tax revenue collected or protected since 2021-22, the figures show the tax gap is increasingly concentrated among smaller businesses.
“Small businesses now account for 62% of the total tax gap, with around half of that being driven by worsening Corporation Tax compliance. This suggests compliance pressures on smaller enterprises are intensifying, whether through increasing complexity, resource constraints or difficulties keeping pace with changing reporting requirements.
“The statistics also underline that the challenge is not primarily one of deliberate evasion. The largest behavioural contributors to the gap are failures to take reasonable care (35%) and errors (16%).
“HMRC is taking various steps to support small businesses, including the roll out this year of Making Tax Digital for income tax as well as plans for small companies and micro-entities to file profit and loss accounts with Companies House from April 2028. HMRC is also consulting on new detailed reporting arrangements for loans made to company directors.
“These collective actions, along with more general digitisation of reporting, should work towards closing the tax gap but they will come at a cost for small businesses and will take time to trickle through to results.
“The Government has to prioritise simplifying the tax system and making it easier to navigate if HMRC is to tackle the tax gap more radically. A reduction in the gap, theoretically, could lead to an environment where taxes could come down or at least not be increased.
“With the tax authority previously stating that £1 spent on compliance workforce delivers a £22 return on top of the investment, the incoming Prime Minister and potentially a new Chancellor may see further investment in compliance activity as one of the most effective and politically palatable ways to increase tax revenues.”
ENDS
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