Small businesses continue to account for the majority of the UK's tax gap, according to the latest HM Revenue & Customs (HMRC) figures, as the government ramps up enforcement efforts aimed at recovering billions in unpaid tax.
Provisional estimates published today show that small businesses were responsible for 62 per cent of the UK's tax gap in the 2024-25 tax year, maintaining their position as the largest contributor to the difference between tax owed and tax collected.
The tax gap stood at 6.4 per cent of total tax liabilities, equivalent to £59.2 billion in unpaid tax, while HMRC collected £865.2bn, representing 93.6 per cent of all tax due.
Around half of the small business tax gap relates to Corporation Tax, which accounted for 35 per cent of the overall tax gap. HMRC said the Corporation Tax gap had risen to 18.1 per cent by value, making it one of the largest areas of concern for compliance efforts.
The figures come as the government pursues plans to raise an additional £10bn annually by 2029-30 through measures designed to reduce tax non-compliance.
HMRC chief executive and first permanent secretary JP Marks said the changing nature of tax compliance required new approaches.
"Today's estimates reflect the changing world in which HMRC operates, where it is becoming more difficult to tackle non-compliance through traditional approaches alone," Marks said.
"That is why our aim is a well-designed modern tax system that makes it easier to get things right first time and harder to get things wrong."
HMRC's analysis found that failure to take reasonable care remained the biggest behavioural driver of the tax gap, accounting for 35 per cent of lost revenue. Errors accounted for a further 16 per cent, while evasion represented 12 per cent.
The findings suggest that mistakes and negligence continue to outweigh deliberate tax evasion as causes of unpaid tax.
The government has committed £1.7bn over four years to HMRC as part of the Spending Review 2025, funding an additional 5,500 compliance officers and 2,400 debt management staff.
HMRC said its compliance activities generated and protected a record £48bn in revenue during 2024-25 that would otherwise have gone unpaid.
While the latest estimate of 6.4 per cent is lower than the 7.5 per cent recorded when tax gap measurement began in 2005-06, HMRC revised upwards several previous estimates following improvements to data and methodology.
The provisional tax gap estimate for 2023-24 was revised from 5.3 per cent (£46.8bn) to 6.0 per cent (£52.8bn), while the estimate for 2022-23 was increased to 6.6 per cent.
The government said measures announced since Autumn Budget 2024 are expected to generate an additional £10bn a year by the end of the decade as it seeks to narrow the gap between taxes owed and taxes collected.