Andy Burnham, the tax gap, and raising £15bn without a tax rise

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How Andy Burnham could raise £15bn – without a tax rise.

Small BusinessTax Gap

By Dan Neidle

·

July 1, 2026

·19 Comments

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It’s the UK’s biggest and least discussed tax problem. There’s between £30bn and £48bn missing from each year’s small business tax bills. It’s been getting worse – and nobody knows why.

There’s no other issue where so much money is at stake but so little time is spent discussing it. It’s almost never mentioned by politicians, and HMRC devotes very limited resources to it. HMRC’s random audit programme checks only 330 small companies each year.

HMRC made spectacular progress on the large business corporation tax gap in the 2000s. If they made the same progress on the small business corporation tax gap, it would raise around £15bn. That revenue could be used to reduce the main rate of corporation tax down to 21%, benefiting all businesses. Or it could cover, for example, a major expansion in defence spending. And corporation tax is only part of the small business tax gap.

We shouldn’t just focus on numbers – there’s a fairness problem too. I receive emails every week from honest businesspeople furious that they’re undercut by competitors who don’t pay their tax. It’s an unfair playing field, tilted against the people doing the right thing.

This should be a cause tailor-made for a politician looking to show they stand for both fairness and business. It’s pro-enterprise and pro-fairness at the same time – and would be applauded by all the small businesses currently being ripped off by their less scrupulous competitors.

The first step is easy, uncontroversial and cheap. Push HMRC to properly resource and expand its random audit programme. Until we know what’s going on, we can’t fix it. And tens of billions of pounds will continue to vanish every year.

Technical terms in this article

Tax gap<br>The difference between the tax HMRC should collect if everyone paid what they owed, and the tax it actually collects. HMRC’s 2024/25 estimate is £59.2 billion, or 6.4% of all tax due.<br>HMRC — Measuring tax gaps

Small business<br>HMRC’s own customer grouping: broadly, a business with turnover below £10 million and typically fewer than 20 employees. It is an administrative classification, not the ‘small company’ test in company law.<br>HMRC — Methodological annex

Corporation tax<br>The tax companies pay on their profits. The main rate is 25%, and companies with small profits pay 19%. It is the single largest part of the small business tax gap.<br>gov.uk — Corporation Tax rates

Random enquiry programme<br>HMRC’s programme of random, in-depth audits used to estimate parts of the tax gap. For small-company corporation tax it covers only around 330 companies a year, whose results are scaled up to the whole population.<br>HMRC — Methodological annex (Chapter H)

Compliance yield<br>HMRC’s measure of the extra tax it brings in through investigation and enforcement – money that would otherwise have been lost. For small business corporation tax it has stayed flat even as the gap has soared.<br>HMRC — Methodological annex (Chapter C)

Avoidance and evasion<br>Evasion is illegally not paying tax you owe. Avoidance is using contrived arrangements to gain a tax advantage the law never intended – legal in form but against its spirit. Both are far smaller parts of the gap than most people assume.<br>Tax Policy Associates

Failure to take reasonable care<br>HMRC’s category for tax lost through carelessness rather than deliberate cheating – mistakes a taxpayer could reasonably have avoided. It is the single largest behavioural cause of the tax gap.<br>HMRC — Tax gap by behaviour

Show definitions in text<br>Expand<br>Shrink

What is the tax gap?

HMRC’s provisional estimate for the 2024/25 tax gap is £59.2 billion, or 6.4% of all the tax theoretically due.1

Over the long term the tax gap has fallen significantly in percentage terms.2 Since 2017, however, progress has stalled or slightly reversed:

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Who’s responsible for the tax gap?

It’s a common belief that most of the tax gap is caused by big business and the very wealthy avoiding tax. This is doubly wrong: only a small proportion of the tax gap relates to tax avoidance, and only a small proportion of that relates to either big business or the very wealthy.

What behaviour?

Most of the tax gap is people making bad mistakes – “failure to take reasonable care” at £20.8 billion – followed by error and evasion. Tax avoidance is the smallest category of all, at under £1 billion:

The avoidance tax gap has been shrinking for years, with income tax, NICs and CGT avoidance having fallen from £1.5bn in 2005/06 to around £0.2bn.

What tax?

The tax gap across...