The Government says the gap between what it expects to earn from tax and what it actually does currently sits at 5.3%, in the latest figures. The so-called ‘tax gap’ means that the Government faces a staggering £46 billion shortfall in its tax receipts for the 2023/24 tax year. It has said it is planning a major crackdown as a result in order to close the gap.
For comparison, £46 billion is more money than is currently spent on the entire UK defence budget (£37.5 billion). It represents more than half of the annual education budget (£88.8 billion).
The Government says that small businesses (SMEs) account for 60% of the total tax gap, while Corporation Tax accounts make up 40%.
Separate figures from tax policy reform advocates Tax Policy Associates (TPA) show that 40% of corporation tax owed by SMEs is currently going unpaid. It has accused the Government of ‘losing control’ of the situation, despite more broadly having decreased the overall tax gap in the past 19 years. SMEs, according to TPA, have failed to pay some £28 billion in tax owed.
The Government is emphatic in its view that it intends to further crack down on non-payment of taxes owed. Exchequer Secretary to the Treasury, James Murray MP, has set out his three priorities for HMRC: closing the tax gap, improving customer services, and modernising and reforming the tax and customs system.
Mr Murray comments: “Every pound of tax uncollected puts a greater burden on honest taxpayers and deprives our public services of vital funding. In our first year in office, we have set out plans to raise an extra £7.5 billion through the most ambitious ever package to close the tax gap. We are determined to go further and faster to make sure everyone pays their fair share and help to deliver our Government’s Plan for Change.”
The Government says the primary reasons for nonpayment are failure to take reasonable care (31%), error (15%) and evasion (14%). It believes changes to the tax system, such as the Making Tax Digital (MTD) programme, will help to stamp out error and failure to take reasonable care as an issue. By 2029/30, MTD is predicted to recover around £4 billion from unpaid VAT receipts. MTD for income tax is set to be launched from April 2026 and is set to rake in an extra £1.95 billion, according to Government figures.
Ensuring compliance with tax laws and liabilities is critical and not to be ignored. This is especially relevant to owners who might be considering both business and personal tax liabilities. If you would like to discuss tax-efficient ways to manage business and personal financial plans, don’t hesitate to get in touch.
