23 June 2026
If you are covering HMRC's new tax gap data, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
HMRC’s latest provisional tax gap estimate suggests UK tax compliance has weakened, with 93.6% of tax collected in 2024–25 and a gap rising to 6.4%, equivalent to £59.2 billion. After years of gradual improvement, this points to a reversal in the trend, with even a small increase in the percentage gap translating into a significant amount of lost revenue as the overall tax base continues to grow.
Some of the long-term gains in compliance remain intact, particularly in VAT and personal taxes, but there are signs that pressure is beginning to build. The gap for income tax, National Insurance and capital gains tax has edged up to 4.0%, while corporation tax remains the standout challenge at 18.1%. Both areas now account for around 35% of the total tax gap, underlining where the system is under the greatest strain.
The issue is particularly concentrated among smaller businesses, which now make up 62% of the overall gap. This reflects a structural problem with how complex the system has become for those without dedicated tax expertise. As reporting requirements grow, the risk of mistakes increases, meaning a significant portion of the gap is likely driven by error and misunderstanding rather than deliberate non-compliance.
At the same time, changes to allowances and the freezing of thresholds are continuing to pull more individuals into the tax system. Lower dividend and capital gains allowances in particular mean more people are having to file Self Assessment returns for the first time, often with limited understanding of the rules. As more taxpayers move beyond PAYE and into more complex reporting, the risk of accidental non-compliance increases.
Keir Starmer’s resignation yesterday means a change in leadership is on the horizon, which could bring a different approach to taxation if a new Chancellor is also brought in. Even with the next Budget still some months away, this data highlights an important point for policymakers. 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.
