The Treasury faced a substantial £59.2 billion shortfall from unpaid taxes last year, with small businesses accounting for nearly two-thirds of the UK’s overall tax gap, according to the latest figures from HM Revenue & Customs (HMRC).
The tax gap, which measures the difference between the amount of tax expected to be paid and what was actually collected, stood at an estimated 6.4 per cent.
HMRC successfully collected £865.2 billion in total over the 2024 to 2025 tax year, representing 93.6 per cent of all tax due.
This latest shortfall marks an increase from the previous year’s revised figure of £52.8 billion, or 6 per cent.
HMRC estimated that non-compliance by small businesses alone constituted 62 per cent of the 2024 to 2025 tax gap, making them the largest single contributor across all customer groups.
This was largely due to unpaid corporation tax – for which the overall gap rose to 18.1% in the latest year.
Corporation tax is paid by businesses on the profits they make from trading, investments and selling assets.
The rate of tax paid depends on how much profit a company makes.
Failure to take reasonable care due to carelessness or negligence remained the largest behavioural driver of unpaid tax, followed by error.
Tax evasion accounted for 12 per cent of last year’s tax gap, HMRC said.
Rachael Griffin, tax and financial planning expert at Quilter, said: “Closing even a fraction of the £59.2 billion tax gap could play a meaningful role in supporting the public finances without the need for further headline tax rises.
“Improving how the system works in practice, particularly for small businesses and those newly entering self assessment, may prove just as important as any changes to tax rates in the months ahead.
“Simplifying a tax system that continues to grow ever more complex should be high up on the to-do list.”
HMRC chief executive JP Marks said: “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.
“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, and which allows us to respond effectively to non-compliance and tackle criminal activity.”
