The UK tax gap has reached an estimated £46.8 billion for 2023/24, with 5.3% of total taxes going unpaid.
HMRC will be concerned that small businesses are responsible for 60% of the missing taxes. The tax gap for corporation tax has increased from 6.4% in 2011/12 to nearly 16%.
The tax gap for wealthy individuals remains steady at around 5%. There are many fully legitimate tax-planning strategies available for those in this bracket. Explore our tax planning services here.
Small companies
It is not surprising that small company owners take steps to limit tax exposure. Companies now face higher corporation tax rates, and it is increasingly costly for owners to extract profits.
- Owners may exploit expensing rules by claiming deductions on non-work-related purchases like laptops or phones, even with minimal business use.
- Some owners may avoid declaring income by accepting cash payments or using payment in kind.
HMRC has lacked resources to run extensive tax investigations. This may change with substantial new funding allocated by the Chancellor.
Cryptoassets
Non-compliance is estimated to be high in cryptoassets, with HMRC struggling to keep up in this fast-moving sector.
It is easier for HMRC to track cryptoassets when converted to cash. However, it becomes more complex when one token is exchanged for another (e.g., Bitcoin to Ethereum) or when tokens are used to pay for goods (including via crypto debit cards). Both actions count as disposals for capital gains tax.
Directors should ensure they understand their obligations. If you need help staying compliant while planning effectively, contact our team.
See HMRC’s summary of the tax gap here.