Small firms behind 80% of tax evasion

Tax evasion by small businesses has emerged as a significant issue, costing the UK billions annually. According to a report from the National Audit Office, HM Revenue & Customs (HMRC) estimated that £5.5 billion was lost to deliberate tax evasion in the 2022-23 financial year, with small firms responsible for 81% of this figure. This highlights a troubling trend where small companies are increasingly exploiting weaknesses in government systems to evade taxes. The overall tax gap, which represents the difference between taxes owed and those actually paid, has seen a reduction from 7.4% in 2006 to 4.8% last year. However, the proportion of this gap attributed to small businesses has risen significantly over the past five years, increasing from 44% to a much larger share. This shift indicates that while the total tax gap is decreasing, small firms are becoming a larger part of the problem. The National Audit Office's findings suggest that HMRC currently lacks a specific strategy to effectively address the issue of tax evasion among small businesses. This absence of a targeted approach raises concerns about the government's ability to combat tax evasion effectively, especially as small firms continue to exploit loopholes. In conclusion, the report underscores the urgent need for HMRC to develop a comprehensive strategy to tackle tax evasion by small businesses. Without such measures, the financial losses to the public purse are likely to continue, undermining the integrity of the tax system and placing a greater burden on compliant taxpayers.