The ‘tax gap’ and small businesses
HMRC’s publication of revised (and increased) tax gap figures earlier this week has understandably drawn attention. The focus has been both on the overall increase, and the element attributed to small business underpayment of taxes.
The tax gap is measured and published annually by HMRC. It measures a comparison between what taxes ought to have been paid, and what has been lost due to error, carelessness, avoidance, or tax evasion.
The FT noted that: “Small businesses accounted for the lion’s share of the gap, representing 62 per cent of the total in 2024-25, unchanged from the previous year but up from 58 per cent in 2020-21. In its latest update, HMRC cautioned there was ‘emerging evidence’ that the small business tax gap may have been ‘understated’ in earlier years.”
Investigative think tanks such as Tax Watch are also focusing on the detail behind the official announcements, and the scale of the apparent tax losses in the small business sector are attracting attention. This should be seen alongside HMRC’s proposals for increased scrutiny of small businesses and companies.
Whatever the changes in Downing Street, we can expect to see a pick-up in HMRC tax investigations in the years ahead.
