Tax gap grows to £59bn in spite of efforts to reduce non-payment

By the Editorial Team · Wednesday, June 24, 2026

The UK tax gap grew to an estimated £59.2 billion in 2024-25, with small businesses responsible for the majority of unpaid taxes, particularly corporation tax. The government plans to invest £1.7 billion in HMRC staffing and aims to simplify the tax system to improve compliance and reduce this costly shortfall.

The gap between the tax owed and the tax collected in the United Kingdom widened to an estimated £59.2 billion in the 2024-25 tax year, according to provisional figures released by HM Revenue & Customs (HMRC). This shortfall represents 6.4 percent of the total theoretical tax liabilities, up from £52.8 billion or 6 percent in the previous year. HMRC collected £865.2 billion, equating to 93.6 percent of all taxes due.

Small businesses accounted for the majority of the gap, representing 62 percent of the total in 2024-25, a proportion that has remained consistent compared to the previous year but has increased from 58 percent in 2020-21. This portion of the tax gap was largely driven by unpaid corporation tax, for which the overall gap stood at 18.1 percent. Large businesses contributed about 12 percent of the shortfall last year.

HMRC noted there is “emerging evidence” that the small business tax gap may have been previously understated. Tax experts highlighted the challenges in enforcing compliance among numerous small businesses, emphasizing that tackling non-compliance in this sector is resource-intensive and politically sensitive given the vital role these firms play in economic growth. Laurence Field, partner at Crowe, described the difficulty in adopting a heavy-handed approach toward small enterprises, many of which are run by owner-managers who are also voters.

Emma Rawson, director of public policy at the Association of Tax Technicians, stressed that enforcement alone would not solve the issue. She pointed to the complexity of the tax system as a significant factor, noting that many small business owners are making efforts to comply while managing the operational demands of their companies.

The behavioral drivers behind unpaid tax were identified as failure to take reasonable care due to carelessness or negligence (35 percent), followed by error (16 percent), and evasion (12 percent). The share of the tax gap attributed to criminal activity slightly declined from 9 percent to 8 percent, while the portion linked to wealthy individuals increased from 5 percent to 6 percent. The proportion connected to individuals remained steady at approximately 4 percent.

The UK government has made reducing the tax gap a key priority. In the 2025 Spending Review, HMRC was allocated £1.7 billion to recruit an additional 5,500 compliance staff and 2,400 debt management staff to address compliance risks more effectively. John-Paul Marks, HMRC chief executive, highlighted the evolving challenges in tackling non-compliance and underscored the agency’s goal of developing a modern tax system that simplifies compliance, reduces errors, and enhances the ability to respond to tax avoidance and criminal activity.

Financial experts also highlighted the broader implications of closing the tax gap. Rachael Griffin, a tax and financial planning expert, pointed out that even partial recovery of the £59.2 billion shortfall could significantly benefit public finances without resorting to further tax rises. She advocated for simplifying the increasingly complex tax system as a priority in efforts to reduce unpaid tax.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.