HMRC tax gap widens: What it means for small businesses

HMRC released its annual tax gap figures last week for the 2023–24 tax year, revealing a significant increase in the estimated shortfall between taxes owed and taxes collected.

The total tax gap now stands at 5.3% of total theoretical tax liabilities, equivalent to £46.8bn. This marks a sharp rise from £39.8bn in the 2022–23 period and underscores HMRC’s growing challenge in ensuring tax compliance across the UK.

Tax Senior Manager at MHA, Sara Purnell says, “Perhaps the most revealing statistic is that small businesses are responsible for around 60% of the total tax gap”.

Corporation Tax Gap reaches 15.8%

While most tax types have seen relatively stable gaps, Corporation Tax is an exception, with the gap increasing notably to 15.8%. This trend suggests that more businesses, particularly smaller enterprises, are either unintentionally underpaying or failing to meet their tax obligations altogether.

Small businesses in the spotlight

Perhaps the most revealing statistic is that small businesses are responsible for around 60% of the total tax gap. By contrast, the gap attributed to wealthier individual taxpayers sits at around 5%. This disparity indicates where HMRC sees the greatest opportunity and risk for revenue recovery.

Given this, it’s reasonable to anticipate an increase in HMRC activity directed at small and medium-sized businesses in the coming months. From targeted Corporation Tax enquiries to increased scrutiny over business expenses and reporting, small business owners should be prepared for a more assertive compliance posture from the tax authority.

What this means for you

Receiving a brown envelope from HMRC can be daunting, but it’s not something you have to face alone. Our tax disputes team has deep expertise in handling HMRC enquiries, from straightforward requests for information to complex investigations. We work with businesses across sectors to manage risk, respond to HMRC effectively, and resolve disputes with minimum disruption.

If you’re concerned about the implications of the rising tax gap, or if you’ve already received an enquiry letter, now is the time to act. Early advice can make a significant difference in both the outcome and the stress involved.

Read more here.