UK tax gap widens to £59.2bn

The UK’s tax gap rose to £59.2bn in the 2024/25 financial year, according to provisional figures published by HMRC.

The shortfall represented 6.4% of total tax liabilities, up from a revised estimate of 6% in the previous year. Although the figure remains below the 7.5% recorded in 2005/06, it is higher than the pre-pandemic low of 5.2% seen in 2017/18.

HMRC said small businesses remained the largest contributor to the tax gap, accounting for 62% of the total shortfall compared with 40% in 2017/18. The department estimates that more than half of small businesses submit incorrect tax returns, with a significant proportion containing errors valued at more than £1,000.

Corporation tax was also a major contributor, representing 35% of the overall gap. The tax had an estimated shortfall rate of 18.1%. In terms of taxpayer behaviour, failure to take reasonable care was identified as the largest driver of the tax gap, accounting for 35% of the total, while criminal activity represented 26%.

The government said measures announced since the Autumn Budget 2024 are intended to reduce the shortfall and generate an additional £10bn in annual revenue by 2029/30. HMRC added that tax gap estimates should be viewed primarily as a long-term indicator of compliance because of the uncertainties involved in calculating them.