The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. For 2021/22, the gap was at an all-time low of 4.8% (or £35.8 billion), although in monetary terms the gap increased by some £7 billion from 2020/21.
Small businesses
Recently published figures from HMRC show that small businesses now account for the largest share of the tax gap, at 56% of the total or just over £20 billion. This percentage has grown steadily from 40% in 2017/18. By comparison, the share for mid-sized and large businesses has fallen from 18% to 11% over the same period.
There isn’t sufficient information to understand what is happening here, but there are a couple of possibilities:
- Having endured the challenges of the Covid-19 pandemic and now facing an equally tough economic climate, small businesses may be under-declaring income or, more likely given most sales are now done electronically, overclaiming on expense deductions.
- At the same time, HMRC now lacks the resources to carry out extensive tax investigations.
And, of course, having an extremely complex tax system doesn’t help.
The whole concept of the tax gap has been subject to criticism, especially as HMRC does not explain how figures are calculated.
Our Yorkshire and Derbyshire based Accounting & Business Advisory can assist on 0114 266 4432 or info@smh.group
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