Nearly two-thirds of uncollected revenue comes from smaller businesses.
In 2023–2024, small businesses in the UK failed to pay 40% of their corporation tax due, which sparked accusations that HM Revenue & Customs had “lost control” of the industry.
According to data released by HMRC on Thursday, the amount of corporation tax owed but unpaid by smaller businesses increased from £12.3 billion to £14.7 billion, even though the overall “tax gap” between amounts due and collected decreased during the year.
Just £22 billion of the £36.7 billion that HMRC estimated small businesses owed over the course of the year was collected, meaning 40.1% was not paid.
Small businesses, which are defined as those with less than 20 employees and a turnover of less than £10 million, were responsible for less than half of the UK’s total tax gap in 2019–20 across all levies, including payroll taxes. For 2023–2024, that percentage has increased to 60%.
According to Dan Neidle, founder of the Tax Policy Associates think tank, “HMRC has done an impressive job reducing the large company tax gap in the last 20 years.” However, it appears that they are no longer in charge of the tax gap for small businesses.
According to the Federation of Small Businesses, many businesses felt that HMRC was unresponsive to their inquiries and that the tax system was too complicated.
Policy head Tina McKenzie stated, “HMRC needs to concentrate on answering its phones, cutting response times, and assisting people in navigating the tax system.”
“This would increase tax revenue and lessen the productivity loss caused by a non-responsive tax authority, which many of the 99 percent of businesses in the UK that are classified as “small” currently face.”
The total tax owed that was not collected during the year was £46.8 billion, representing a 5.3% tax gap. This is lower than the revised 5.6% tax gap from 2022–2023. During 2023–2024, HMRC collected £829.2 billion in taxes.
Although the largest contributor to the tax gap was small businesses, HMRC calculated that the wealthiest individuals “made up the lowest proportion of the tax gap” at 5% in 2023–2024.
Some criticized the finding, especially after the National Audit Office recently issued a warning that HMRC may be underestimating the tax gap from wealthy individuals.
“Evidence suggests that the level of tax non-compliance among the super-rich is far higher than estimated, with eye-watering sums of hoarded wealth being held offshore and out of sight of HMRC,” stated Caitlin Boswell, head of advocacy and policy at Tax Justice UK, a pressure group.
“The truth is that the tax authority in the United Kingdom lacks the necessary resources and support to address the tax gap, which is probably much greater than what is reported,” she continued.
“Every pound of tax uncollected puts a greater burden on honest taxpayers and deprives our public services of vital funding,” stated Treasury Minister James Murray.
The government has plans to raise an additional £7.5 billion “through the most ambitious ever package to close the tax gap,” he continued.To ensure that everyone pays their fair share, we are committed to moving further and more quickly.
The government allocated £1.7 billion to HMRC during the spending review to support an additional 2,400 debt management and 5,500 compliance employees over the following four years.
“We are working closely with small businesses to provide improved services that help them pay the right tax first time, while tackling those who deliberately bend the rules,” a representative for HMRC stated.
