HMRC’s estimate of the UK tax gap rose to 6.4%, or £59.2 billion, for the 2024 to 2025 tax year, according to figures published on 23 June 2026. Small businesses account for 62% of that shortfall, the largest share of any customer group HMRC tracks.
The main figures behind the estimate:
- A £59.2 billion gap, 6.4% of £924.4 billion in total theoretical tax liabilities, and £865.2 billion collected, or 93.6% of tax due
- Small businesses at 62% of the gap, ahead of large businesses at 12% and individuals at 4%
- Corporation Tax at a 35% share, its own gap rate rising from 15.6% in 2019 to 2020 to 18.1%
- Failure to take reasonable care at 35%, ahead of error at 16% and evasion at 12%
- £1.7 billion allocated to HMRC over four years for 5,500 compliance and 2,400 debt management staff
What the UK tax gap figures show about small businesses
The tax gap is HMRC’s estimate of the difference between tax that should in theory be paid and tax actually received. The 2024 to 2025 figure is up from a revised 6.0%, or £52.8 billion, for the previous year.
Those earlier years move as better data arrives. The 2023 to 2024 estimate has been raised from the 5.3%, or £46.8 billion, first published in June 2025. The 2022 to 2023 figure has gone from 4.8% in the 2024 edition to 5.7% in 2025 and 6.6% now.
The longer trend runs the other way. The gap stood at 7.5% in 2005 to 2006, the first year HMRC measured it, and has fluctuated since.
HMRC’s definition of a small business is broader than the phrase suggests. It covers any business with turnover under £10 million and fewer than 20 employees, taking in sole traders and partnerships filing Self Assessment alongside small limited companies.
Scale is part of the picture. The Department for Business and Trade counted 5.69 million private sector businesses in the UK at the start of 2025, of which 8,335 employed 250 people or more.
Around half of the small business share sits in Corporation Tax, which only limited companies pay. HMRC has moved its small business Corporation Tax estimate from medium to high uncertainty in this edition, so that component carries more doubt than most of the rest of the gap.
The full Measuring Tax Gaps 2026 statistical release sets out the methodology.
Why most of the gap is error rather than evasion
HMRC splits the shortfall into eight behaviours. Failure to take reasonable care, which it defines as avoidable error caused by carelessness or negligence, is the largest of them.
Added to plain error, the two mistake categories reach 51% of the gap, more than four times the share attributed to deliberate evasion.
The remaining 37% splits between legal interpretation at 12%, non-payment at 10%, criminal attacks at 8%, the hidden economy at 6% and avoidance at 1%.
That balance matters for how the figure is read. On HMRC’s own numbers, the bulk of the gap comes from businesses getting things wrong rather than from businesses setting out to cheat.
What HMRC is doing about it
The 2025 Spending Review allocated £1.7 billion to HMRC over four years to fund the additional compliance and debt management staff.
Combined with measures announced since the Autumn Budget 2024, the government is targeting a further £10 billion a year by 2029 to 2030.
JP Marks, HMRC’s Chief Executive and First Permanent Secretary, said the department is trying to build a system where it is “easier to get things right first time and harder to get things wrong.”
He also pointed to a record £48 billion in compliance yield for 2024 to 2025, HMRC’s term for extra tax its enforcement work either brought in directly or stopped from being lost.
What this means for your next tax return
More compliance checks are likely, and small businesses may feel them first as the largest single contributor to the gap.
Five checks worth making before you file:
- Work out which taxes actually apply to you. Corporation Tax reliefs are relevant if you run a limited company. If you are a sole trader, Corporation Tax does not apply and your exposure runs through Self Assessment.
- Keep records through the year rather than reconstructing them at the deadline. Incomplete records are what HMRC’s largest behavioural category describes.
- Check reliefs and allowances carefully. They are easy to misapply, not because the rules are being gamed but because they are genuinely complicated.
- Check whether Making Tax Digital for Income Tax applies to you. It has applied to sole traders and landlords with qualifying income over £50,000 since 6 April 2026.
- Leave time to review before submitting. The 2025 to 2026 return is due by 31 January 2027, and the 2026 to 2027 tax year is the one you are recording now.
If you are filing for the first time, the Tax Rebate Services guide to completing your first Self Assessment tax return as a self-employed person covers the errors this data points to.
Written by:
Tax Rebate Services Editorial Team
Reviewed by:
Tony Shanks
,
qualified Taxation Technician (ATT)
Last updated:
This article provides general information and is correct as at the date shown. It isn't personalised tax advice — for help with your own circumstances, speak to a qualified adviser or HMRC.
