19 June 2025
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 tax gap data shows the UK collected 94.7% of all theoretical tax liabilities in 2023–24, leaving a gap of 5.3%, which is equivalent to £46.8 billion. This figure remains relatively flat year on year but is still significantly better than in 2005–06, when the gap stood at 7.4%.
"There has been strong progress in areas like VAT and income tax, with the VAT gap falling from 13.8% in 2005 to just 5.0% today, and the income tax, national insurance, and capital gains tax gap dropping to 3.0%, down from a high of 5.3% a decade ago.
"However, the standout concern from this data is the corporation tax gap, which has jumped to 15.8%, the highest rate recorded in over a decade. Corporation tax now makes up 40% of the entire tax gap, up from just 24% five years ago. That’s a red flag for policymakers, especially as economic uncertainty and global tax competition continue to put pressure on business revenues.
"The rise in the corporation tax gap is likely driven by a mix of economic strain, increased complexity in the global tax system, and perhaps a lag in HMRC enforcement capacity. Reversing this trend demands a rethink of how tax is administered and simplified.
"Another persistent pressure point is the UK’s small business sector. Small businesses now account for 60% of the total tax gap, up from 48% in 2019–20. This underscores the ongoing challenge of ensuring compliance in a large, diverse, and often under-supported part of the economy.
"From a personal taxation perspective, compliance remains relatively high. Individuals—including the wealthiest—now account for only 10% of the overall tax gap. This suggests that while high earners often attract the most political scrutiny, the system is largely effective at collecting what is owed. However, with frozen thresholds and lower allowances, for dividends and capital gains in particular, more people are being pulled into the tax system for the first time, often without realising it. That raises the risk of accidental non-compliance, especially where income is irregular or reporting requirements are poorly understood. HMRC will need to ensure that the growing cohort of ‘new taxpayers’ receives clear guidance and support to avoid mistakes.
"With a budget on the horizon, the temptation will be to extract more revenue from ‘the rich’ or large companies to help shore up public finances. But today’s data suggests improving the system’s resilience and simplifying compliance for small firms may prove far more effective than headline-grabbing tax hikes.
"To make further progress, the next government should invest in digitisation, expand HMRC’s resources, and simplify tax legislation. Similarly, poorly thought through policy announcements like the Winter Fuel Payment cut piled pressure on HMRC as retirees rushed to apply for pension credit, gluing up resource. Reducing friction and confusion will be as important as tougher enforcement if the UK is to shrink the gap further in a fair and sustainable way."
