The estimated tax gaps for the 2023 to 2024 tax year have just been published by HMRC.
A tax gap is the difference between the amount of tax that should theoretically be paid to HMRC and the actual amount paid.
The 2023-24 tax gap is estimated to be 5.3% of the theoretical tax liabilities, amounting to £46.8 billion.
The good news for HMRC is that this gap has been reducing over time from a peak in 2005 of 7.4% to a low of 5.1% in 2017. It has settled at around 5.5% in more recent years.
What makes up that missing £46.8 billion?
- Corporation Tax accounts for 40%
- Income Tax, National Insurance and Capital Gains Tax account for 31%
- VAT accounts for 19%
- The balance is made up of excise duties and other taxes
Which taxpayer groups account for the largest share of the tax gap?
- Small businesses 60% share, rising from 48% over the last 5 years
- Large businesses, 12% share
- Mid-sized businesses, 9% share
- Criminals, 9% share
- Individuals, 5% share
- Wealthy individuals, 5% share
The report also indicates the behaviours contributing to the gap. HMRC attributes failure to take reasonable care a 31% share, error a 15% share and evasion a 14% share.
James Murray, Exchequer Secretary to the Treasury has set three priorities for HMRC, one of which is closing this gap. Reinforcing that the revenues are needed to fund public services, he comments:
“We are determined to go further and faster to make sure everyone pays their fair share”
Clearly, we can expect an increased focus on SME compliance. Using a Chartered Accountancy firm, like our own, with high level tax planning services can provide a level of assurance to taxpayers that their tax affairs are in order.
