HMRC report the 2023/24 Tax Gap has fallen to 5.3 percent

In the introduction to the Tax Gap report, HMRC compare the movement in percentage terms for each category of tax from the first year of reporting (2005/06) to the latest year. Only corporation tax shows an overall increase in this timeframe (from 11.4 percent in 2005/06 to 15.8 percent in 2023/24); all other tax types show reductions. The report notes that the Tax Gap from small businesses is the largest component by customer group at a 60 percent share in 2023/24.

The figures below have been sourced from HMRC’s estimates published on 19 June 2025. The percentage figures are the percentage share of the total Tax Gap.

Tax Gap by type of tax 

The most notable change this year is the increase in the Corporation Tax gap, which is largely attributable to small businesses. When looked at as a percentage of theoretical corporation tax liabilities, it has remained fairly steady at 16 percent in 2022/23 and 15.8 percent in 2023/24. However, as the theoretical tax liability for Corporation Tax increased from £97.1 billion in 2022/23 to £117.4 billion in 2023/24 the absolute amount of the gap has increased significantly.

The VAT gap has reduced from 13.8 percent of theoretical VAT liability in 2005/06 (or £11.6 billion) to 5.0 percent in 2023/24 (or £8.9 billion). The trend has been one of gradual decline until recent years where it has been more erratic. During the coronavirus (COVID-19) period of 2020/21 and 2021/22 the VAT gap was lower than previous years. In addition, the VAT gap figures for 2022/23 have been adjusted following amendments to revised expenditure data published by the Office for National Statistics (ONS) and a review of HMRC VAT receipt statistics. The net effect is £5.0 billion, equivalent to a 2.9 percentage point increase in the VAT gap for 2022/23.

It will be interesting to monitor what happens to the VAT gap trends, particularly as Making Tax Digital for VAT has now been fully in effect for all VAT registered businesses since 2022.

Tax Gap by customer group 

By far the largest contributors to the Tax Gap continue to be small businesses and they make up the largest share of the Corporation Tax gap too.

The Corporation Tax gap for small businesses, when looked at as a percentage of theoretical corporation tax liability, is estimated at 40.1 percent in 2023/24 which is a slight fall from 40.5 percent in 2022/23. Since reporting began in 2004/2006 the small business Corporation Tax gap declined until 2011/12 where it bottomed out at 9.1 percent. Since then, it has increased with particularly marked increases between 2018/19 and 2021/22. Some of this is attributable to adjustments to prior years where more non-compliance was identified than had been originally forecast.

The trend is worrying – 40 percent of corporation tax from small businesses is not being paid. HMRC also report that the most recent data in 2021/22 shows 53 percent of small businesses submitted an incorrect Corporation Tax return with an under-declared tax liability, up from 15 percent in 2017/18. This raises questions as to whether HMRC are giving sufficient support to small businesses.

Tax Gap by behaviour

Failure to take reasonable care continues to top the list in terms of behavioural causes of the Tax Gap, a trend HMRC will hope to see decline as Making Tax Digital starts to come online for income tax in addition to VAT. Other behavioural categories stayed fairly consistent.

For further information please contact:

• Sharon Baynham