The UK tax gap held steady at 5.3% in 2023–24, translating to £46.8 billion in unpaid taxes, according to the latest HMRC statistics.
While the percentage has remained broadly stable over recent years, the shape of the gap is shifting—and not in ways many expected.
Corporation Tax has now overtaken all other categories to account for 40% of the total tax gap, up from just 24% five years ago.
The increase is driven primarily by small businesses, who now contribute a disproportionate 60% share of the total tax gap, according to HMRC’s updated segmentation.
Meanwhile, VAT—traditionally the largest contributor—has fallen to 19% of the gap, down from 31% in 2019–20. The VAT gap itself has halved since 2005–06, falling from 13.8% to just 5.0% today.
This is the first time Corporation Tax has taken the lead position in the breakdown, raising questions about the effectiveness of compliance strategies targeting the corporate sector.
Within Corporation Tax, small businesses alone contributed an estimated £14.7 billion shortfall, with an astonishing 40.1% tax gap in this group.
In contrast, the Income Tax, National Insurance, and Capital Gains Tax (IT, NICs, and CGT) gap has dropped to 3.0%, down from 5.3% a decade ago.
PAYE compliance remains high, with gaps under 1% for most employer sizes—except large businesses, which show a 1.1% gap and a “very high” uncertainty rating in HMRC’s methodology.
The largest specific single gap remains with Self Assessment business taxpayers, with a 22.7% estimated gap and £5.8 billion lost revenue, suggesting that unincorporated businesses remain a persistent risk.
Despite the headline figure of 94.7% tax compliance, the absolute tax gap has grown by 44% since 2005–06, as total theoretical liabilities have doubled from £437.7 billion to £876.0 billion.
The data also shows that 79% of this year’s gap estimate relies on methodologies rated as having “medium” uncertainty, a notable increase from 56% in 2024’s edition.
As digitalisation accelerates and Making Tax Digital for Income Tax looms in 2026, the spotlight will likely intensify on small companies and unincorporated traders.
For HMRC, the challenge lies not just in enforcement, but in developing responsive policy that reflects the reality of a shifting taxpayer landscape.