Small businesses are responsible for the majority of the UK’s tax gap in the 2024 to 2025 tax year. HMRC reported a total tax collection of £865.2 billion, covering 93.6% of the total expected tax. That leaves a gap of £59.2 billion in uncollected taxes. Data presented shows small businesses account for 62% of this shortfall.
The report broke down the share of the tax gap by type. Corporation Tax makes up 35% of the total tax gap. Non-compliance among small businesses is the largest contributor to this estimate. Half of the small business tax gap is attributed to Corporation Tax.
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Behavioral risks are a significant factor in the tax gap. Failure to take reasonable care, due to carelessness or negligence, represents 35% of the risk. Errors account for 16%, and evasion makes up 12%. The overall tax gap was 6.4% for the 2024 to 2025 tax year, down from 7.5% when measurements began in 2005 to 2006. This drop marks a 1.1% improvement over the 19-year period.
The percentage tax gap has seen fluctuations over the years. JP Marks, HMRC Chief Executive and First Permanent Secretary, commented on the new figures. “The estimates reflect the changing world in which HMRC operates. Traditional approaches alone aren’t enough to tackle non-compliance. Our goal is a modern tax system that makes it easier to get things right the first time.”
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It is hard to pin down the actual amount of uncollected taxes. Many assumptions go into the estimate. The government’s willingness to invest in compliance shows it sees this as a major issue.
HMRC’s estimates and projections reflect a changing environment. The organization seeks to create a tax system that is easier for businesses to follow, especially as it becomes harder to evade. This will allow HMRC to respond effectively to non-compliance and criminal activity. Around the 2024 to 2025 tax year, many small businesses struggled with the shifting tax requirements. Jenkins’ comments highlight the value of technology in tax collection. Businesses can see enterprise solutions as a means to handle their tax needs better.