Getting to grips with the gap
Small businesses failed to pay 40 per cent of the corporation tax they owed in 2023-24, new figures have revealed.
An HMRC report into the nation’s ‘tax gap’ showed the amount unpaid by small companies rose from £12.3bn to £14.7bn.
The gap, the difference between what tax is expected to be paid and what is actually paid, was 5.3 per cent, with the overall unpaid amount reported to be £46.8bn.
Small businesses represent the largest proportion– 60 per cent. And failure to take reasonable care, error and evasion are among the main reasons for it.
The government has plans to raise a further £7.5bn through its latest measures to close the gap.
But given that it has remained relatively stable despite earlier attempt, some experts say the latest figures raise questions about whether that target is achievable.
Government Treasury minister James Murray has set out his three priorities for HMRC: closing the tax gap, improving customer services, and modernising and reforming the tax and customs system.
He said: “Every pound of tax uncollected puts a greater burden on honest taxpayers and deprives our public services of vital funding.
“In our first year in office, we have set out plans to raise an extra £7.5bn through the most ambitious ever package to close the tax gap. We are determined to go further and faster to make sure everyone pays their fair share.”
HMRC says its Making Tax Digital (MTD) programme is helping to reduce the element of the tax gap caused by error and failure to take reasonable care.
Up to the end of the 2029- 2030 tax year, MTD for VAT is predicted to deliver more than £4bn in tax revenue by reducing errors.
MTD for Income Tax will be introduced from April 2026 and is expected to generate £1.95bn in additional tax revenue by the end of the 2029 to 2030 tax year.
As announced in the chancellor’s Spending Review, £1.7bn will be provided to HMRC over four years to fund an additional 5,500 compliance and 2,400 debt management staff.
The Federation of Small Businesses says that many companies find the tax system too complicated and HMRC unresponsive when they raised questions.
Policy head Tina McKenzie told the Financial Times: “HMRC needs to focus on answering its phones, reducing response times, and helping people navigate the tax system.”
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