Small Businesses Account for Two-Thirds of Britain’s Tax Shortfall
The latest figures from HMRC reveal that the Treasury had a substantial £59.2 billion shortfall from unpaid taxes for the tax year 2024-2025. The 'Measuring tax gaps 2026 edition' found that the tax gap, which measures the difference between the amount of tax expected to be paid and what was actually collected, stood at an estimated 6.4%, up from 5.3% for 2023-24.
HMRC collected £865.2 billion over the 2024 to 2025 tax year, representing 93.6 per cent of all tax due, but non-compliance by small businesses alone constituted 62% of the gap. This was primarily due to unpaid Corporation Tax, as the tax gap rose to 18.1%.
HMRC noted that the tax gap for Corporation Tax had been broadly stable until COVID. In 2019-2020, it rose to 15.6%, but this was partly due to improvements in data collection.
Summary of figures
The tax gap for VAT was 6.6% in 2024-2025.
The tax gap for Income Tax, National Insurance contributions and Capital Gains Tax stood at 4% in 2024-2025, well below the 5.3% in 2013-2014.
The tax gap for excise duty reduced was 5.5% in 2024-2025.
The largest components of the tax gap by tax type in 2024-2025 are for Corporation Tax, Income Tax, National Insurance Contributions and Capital Gains Tax.
The tax gap from individuals was the lowest proportion of the tax gap at 4% in 2024-2025.
Failure to take reasonable care, error and evasion are among the main behavioural reasons for the overall tax gap. Tax evasion accounted for 12% of last year’s tax gap, HMRC said.
To see the full details of HMRC's report, go here https://www.gov.uk/government/statistics/measuring-tax-gaps
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