HM Revenue & Customs (HMRC) has published its latest Measuring Tax Gaps report, revealing that the UK’s estimated tax gap reached £59.2 billion during the 2024/25 tax year.
The tax gap represents the difference between the amount of tax HMRC expects to collect and the amount actually received.
While HMRC successfully collected £865.2 billion, equivalent to 93.6% of all tax due, the report highlights that small businesses account for around 62% of the overall tax gap.
The findings reinforce the importance of accurate bookkeeping, timely tax reporting and maintaining robust financial records.
What Is the Tax Gap?
The tax gap measures taxes that remain unpaid due to a variety of reasons, including:
- Genuine errors
- Failure to take reasonable care
- Tax avoidance
- Tax evasion
- Non-payment
For the 2024/25 tax year, HMRC estimates the tax gap stood at 6.4%, compared with 5.3% the previous year.
Although the vast majority of tax is collected successfully, the figures demonstrate the ongoing challenges of ensuring full compliance across the UK tax system.
Corporation Tax Remains a Key Area
According to HMRC, the largest contribution to the tax gap among small businesses comes from Corporation Tax.
The estimated Corporation Tax gap increased to 18.1%.
HMRC notes that Corporation Tax compliance remained relatively stable before the COVID-19 pandemic, with increases partly reflecting improved data collection as well as ongoing compliance challenges.
Other Key Findings
The report also provides estimates for other major taxes.
VAT
The estimated VAT tax gap was 6.6% during 2024/25.
Income Tax, National Insurance and Capital Gains Tax
The combined tax gap for:
- Income Tax
- National Insurance Contributions
- Capital Gains Tax
was estimated at 4%, significantly lower than the 5.3% recorded a decade earlier.
Excise Duties
The tax gap for excise duties was estimated at 5.5%.
Why Does the Tax Gap Exist?
HMRC identifies several behavioural reasons behind unpaid taxes.
The most common include:
Genuine Errors
Tax legislation can be complex, and mistakes sometimes occur despite businesses intending to comply.
Failure to Take Reasonable Care
Poor record keeping or insufficient attention to tax obligations can lead to inaccuracies.
Tax Evasion
HMRC estimates that deliberate tax evasion accounted for around 12% of the total tax gap during the year.
What Can Businesses Learn?
The report isn’t a suggestion that most small businesses deliberately underpay tax.
Instead, it highlights how important good financial management has become.
Simple measures can significantly reduce compliance risks, including:
Keeping Accurate Records
Maintaining complete bookkeeping records makes preparing tax returns easier and helps reduce errors.
Reviewing Tax Returns Carefully
Checking calculations before submission can help identify mistakes before they become costly.
Understanding Tax Obligations
Whether it’s Corporation Tax, VAT or PAYE, knowing your responsibilities helps avoid unexpected issues.
Seeking Professional Advice
Working with an accountant can help businesses stay compliant while ensuring they claim the reliefs and allowances they’re entitled to.
Why Compliance Matters
Good tax compliance isn’t just about avoiding penalties.
Accurate financial records also provide:
- Better cash flow management
- More reliable business reporting
- Improved decision-making
- Greater confidence when applying for finance or investment
Strong financial management benefits both day-to-day operations and long-term growth.
Final Thoughts
HMRC’s latest report highlights that while the majority of businesses meet their tax obligations successfully, there is still significant scope for improving tax compliance among small businesses.
By maintaining accurate records, understanding tax responsibilities and seeking advice where needed, businesses can reduce the risk of errors and stay on top of their financial obligations.
If you’d like support with bookkeeping, VAT, Corporation Tax or preparing your tax returns, we’d be happy to help.
📞 01527 368220
📧 info@ojwassociates.co.uk
