Global Daily Tax News, UK Releases New Tax Gap Figures, (Jun 30, 2025)

With the UK's new Government having made reducing the tax gap a key priority for its term, the Government has reported that the tax gap for the 2023 to 2024 tax year was 5.3 percent.

The tax gap is the difference between what tax is expected to be paid and what was actually paid. In total, GBP46.8bn went unpaid in the 2023 to 2024 tax year.

The Government has also revised upward the amount of tax thought to have been lost in the 2022-23 tax year by an additional GBP6.6bn, putting the tax gap for that year at 5.6 percent, up from the earlier estimate of 4.8 percent.

The Government hopes that investments at HM Revenue and Customs will save GBP7.5bn in lost tax.

Key findings in this year's report include:

• small businesses represent the largest proportion of the tax gap (60 percent);

• Corporation Tax accounts for 40 percent of the total tax gap; and

• failure to take reasonable care (31 percent), error (15 percent) and evasion (14 percent) are among the main behavioral reasons for the overall tax gap.

Ellen Milner, of the UK's Chartered Institute of Taxation, said: "While large businesses and wealthy individuals are often accused of not paying enough tax, these figures suggest that their total share of the tax gap is not much more than a quarter of that of small businesses. The small business figures reflect big upward revisions from HMRC a year ago as a result of a random inquiry program carried out in 2020-21, which identified greater inaccuracy and non-compliance than previously forecast."

With 1.7 percent of theoretical liability attributed to taxpayers' failure to take reasonable care, and a further 0.8 percent to taxpayer error, Milner said: "These continuing high findings illustrate the impact of our overly complex tax system. Almost half of the tax gap relates to taxpayers not getting things right through what HMRC categorise as error or a failure to take reasonable care."

"Making Tax Digital (MTD) for VAT came in in 2019. The government's [tax gap announcement] suggests they think it is reducing the amount lost to error and carelessness by GBP0.4bn a year, suggesting they think these numbers would be even higher without it. It is hard to discern whether that is correct from today's published figures, though it is fair to point out that the 'VAT gap' has continued a long-term trend downwards during this period. The introduction of MTD for income tax next year is a key part of the government's strategy in this area, but there remain several policy and implementation aspects to be worked through and it is currently unclear whether it will have the impact they hope on taxpayer record-keeping."

"We remain concerned that HMRC's own customer service may be having an impact, too. The difficulties being faced by taxpayers and their agents in getting clarity and timely service from HMRC could be leading to increased losses of tax from those who want to be compliant, but are unable to get the support they need. It emphasizes the importance of improving service levels on helplines and dealing with correspondence, as well as providing and publicizing accessible, clear guidance."