UK Small Businesses Account for 60% of £46.8 Billion Tax Gap

The UK government's latest data reveals that small businesses are responsible for 60% of the country's £46.8 billion tax gap, with a significant rise in unpaid corporation tax reaching 40% in 2023-24. Despite an overall slight reduction in the tax gap to 5.3%, the corporation tax gap surged to 15.8%, its highest in over a decade, driven primarily by non-compliance among small businesses defined as those with turnover below £10 million and fewer than 20 employees. Experts and business groups criticize HM Revenue & Customs (HMRC) for losing control over this sector, citing the complexity of the tax system and HMRC's inadequate responsiveness to small businesses' queries. While HMRC has successfully reduced the tax gap among large companies and wealthy individuals, these groups now account for a much smaller portion of the tax gap. Calls have been made for HMRC to improve customer service to small businesses to enhance compliance and reduce the tax gap. The findings highlight ongoing challenges in managing taxation within a large and diverse economic segment that is critical to the UK economy.