The UK tax gap shows that getting tax right is harder than ever

HMRC's latest tax gap figures have once again sparked debate about the amount of tax that goes unpaid each year. The estimated tax gap for 2024–25 now stands at £59.2 billion, equivalent to 6.4% of the total tax that should, in theory, have been collected. While the headline figure is eye-catching, the detail behind the statistics tells a more interesting story – particularly for small businesses.

Small businesses remain at the centre of the picture

According to HMRC, small businesses account for around 62% of the total tax gap. Corporation Tax also represents a significant share of the overall shortfall. At first glance, these figures might suggest widespread tax avoidance or deliberate non-compliance among smaller businesses. However, the data paints a very different picture.

In fact, more than half of the tax gap is attributed to taxpayer mistakes and failures to take reasonable care. Deliberate tax avoidance accounts for only a very small proportion of the overall gap.

For many business owners, the issue is not a lack of willingness to comply, it’s the growing complexity of the tax system.

Tax is becoming more complicated

Running a business today often means juggling Corporation Tax, VAT, PAYE, dividends, expenses, capital allowances, pensions, benefits in kind and, increasingly, digital reporting requirements.

Many business owners are also managing multiple income streams, property income or side ventures alongside their main business. It's little surprise that errors can occur when tax rules continue to evolve.

Even seemingly straightforward decisions, such as whether an expense is deductible, when income should be recognised or how an asset should be treated, can have unexpected tax consequences.

Can AI help?

Artificial intelligence has become an increasingly popular tool for answering tax questions and there's no doubt it can be useful for explaining concepts or pointing users towards relevant guidance.

However, tax advice is rarely about applying a simple rule. The correct answer often depends on the specific facts of a business, its history and the wider tax position of its owners. AI can only work with the information it's given and cannot exercise professional judgement, identify missing facts or take responsibility for the advice it provides.

Used sensibly, AI can be an excellent starting point for research. But it should not replace tailored advice where tax decisions could have significant financial consequences.

Why professional advice still matters

The latest tax gap figures reinforce an important point: most tax problems do not arise because businesses are trying to avoid paying tax. They arise because getting tax right is increasingly difficult.

A good accountant does far more than prepare year-end accounts or submit tax returns. Professional advice helps businesses understand their tax obligations, avoid costly mistakes, identify available reliefs and allowances, keep accurate records and remain compliant as tax legislation changes.

In many cases, investing in good advice costs far less than correcting an error after HMRC has opened an enquiry.

The bottom line

The tax system isn't getting simpler. As legislation evolves and reporting requirements become more sophisticated, the risk of genuine mistakes inevitably increases.

The latest tax gap statistics should serve as a reminder that paying the right amount of tax isn't always straightforward. Whether you're a sole trader, company director or growing business, taking professional advice remains one of the most effective ways to reduce risk, avoid unnecessary costs and gain confidence that your tax affairs are in order.

After all, when it comes to tax, getting it right the first time is almost always cheaper than putting it right later.

Stephanie Hurst