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HMRC has estimated that the tax gap across all taxes has increased to £35.6bn.

The tax gap is the is the difference between the amount of tax paid to HMRC and the total amount of tax that should theoretically be paid. The difference has increased by £3.8bn, becoming 4.8% of the theoretical total.

Small businesses are the main issue, accounting for 56% of the overall gap, and two thirds of the gap is made up from shortfalls in income tax and corporation tax. VAT, which is now largely filed under the new Making Tax Digital (MTD) rules makes up only 5% of the shortfall, showing that MTD can have a positive impact on tax collection.

Evelyn Partners said that the behaviours driving the tax gap showed a considerable increase in taxpayers failing to take reasonable care, with tax evasion and the hidden economy making up 20% of the tax HMRC estimates it did not collect. Tax avoidance related underpayments remained static at 4%.

HMRC have been criticised for reducing the amount of inspections carried out since COVID, and for other measures such as closing the income tax self assessment helpline with little notice, that are said to make it less likely for taxes to be filed correctly, either deliberately or accidentally.

If you are in doubt about the tax treatments for your business our advice is to always speak to an accountant – better safe than sorry.