For 2022/23, the tax gap has increased to a record £39.8 billion, with small incorporated and unincorporated businesses being blamed for around 60% of uncollected taxes.
The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC and what is actually paid. Despite the record high receipts (link) in monetary terms, the overall tax gap has fallen in percentage terms. It is now estimated that 4.8% of taxes are unpaid compared with 7.4% back in 2005/06.
Small companies
The worst offenders are small businesses in charge to corporation tax with the amount of unpaid corporation tax from these businesses now standing at £10.9 billion, nearly triple the £3.7 billion of five years ago. This means:
- In percentage terms, the tax gap for these small businesses is a somewhat alarming 32.2%.
- Some 45% of small businesses in charge to corporation tax have submitted an incorrect corporation tax return.
By comparison, the tax gap for mid-sized companies is 6.7%, and for large companies is 2.9%.
High tax take
The recently released figures also give a stark illustration of how much the tax take has increased:
- The theoretical amount of tax liabilities has been growing at around 15% per year, increasing from £640.1 billion for 2020/21 to £823.8 billion in 2022/23.
- The theoretical amount has nearly doubled since 2005/06.
Tax receipts as a proportion of GDP over the past 20 years have previously been steady at around 28% but now stand at just over 30%.
Behaviour
The two types of behaviour contributing most to the tax gap are:
- Failure to take reasonable care; and
- Criminal actions
Failure to take reasonable care means not spending the time and effort to make sure reported figures are correct and failing to ensure documents submitted to HMRC are accurate.
HMRC’s summary of the latest tax gap figures can be found here.
Should you need any further help or advice, contact me or a member of our tax team.
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