Rising tax gap shows challenge of hitting targets
Annual “tax gap” figures show almost £47 billion in taxes was not collected last year, highlighting the enormous challenges facing the Government.
The Government has pledged to raise an extra £7.5 billion a year in tax revenue by closing the tax gap, but today’s data from HMRC shows this could be a difficult ask.
“Measuring tax gaps 2025 edition”1 revealed that the difference between the amount of tax due to HMRC and the amount actually paid rose for the third year in a row in absolute terms, to £46.8 billion.
The total tax gap has officially risen by £0.4 billion this year (2023/24). Despite this, its proportion of the entire tax take has dropped to 5.3% (from 5.6% in the previous year). However, there has been a significant revision of the prior year figures, which previously showed the tax gap standing at 4.8% of the entire tax take.
Senga Prior, ATT President, said:
“Today’s figures show that estimating the tax gap is complex, and by its nature an imprecise process. This is reflected in the revisions of previous figures which are made each year.
“This also makes designing measures to tackle the tax gap increasingly tricky.”
Almost half of the tax gap (46%) is due to failure to take reasonable care and errors, equating to £21.7 billion, with evasion and avoidance accounting for a comparatively small £7.1 billion.
Small businesses remain by far the biggest group responsible for non-compliance, accounting for £28 billion. This has increased significantly over the last five years, with small businesses now making up 60% of the tax gap (up from 48% in 2019/20).
Senga Prior said:
“While the Government has committed to raising funds by tackling tax avoidance and evasion, HMRC’s estimated figures appear to show that it is predominantly small businesses failing to take reasonable care and making errors with their submissions that actually account for the largest proportion of the tax gap.
"There is no magic quick fix or headline grabbing answer to this problem, but a starting point would be improving HMRC customer services and providing access to agents to the full range of digital services available to their clients in conjunction with simplification of the tax system.”
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