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UK corporate tax gap grows – What does this mean for businesses?

It was recently reported that the amount of corporate tax underpaid by UK large businesses increased by 15 per cent before the pandemic.

According to HM Revenue & Customs’ (HMRC) latest figures, the tax gap amongst large businesses had grown from £5.3 billion 2018/19 to £6.1 billion in 2019/20 (although still short of the £7.6 billion tax gap in 2005/06).

This was partly the reason why the UK’s overall tax gap increased over the past year from £33 billion in 2018/19 to £35 billion in 2019/20.

However, large businesses are not the worst offenders according to HMRC. It showed that large businesses represented only 17 per cent of the current tax gap, while 43 per cent of the tax gap was attributed to small businesses.

Medium-sized businesses were the least likely to have contributed to the tax gap, according to HMRC.

Although the tax gap is only an estimate of what tax should be paid under HMRC’s interpretation of tax law versus what is actually paid, it is often seen as an indication of how much tax goes unpaid.

As small businesses continue to be labelled as the group most responsible for the gap it is likely that they will be targeted as HMRC seeks to close the tax gap, but the growth in unpaid tax by large businesses may mean that their finances are more carefully scrutinised in future.

HMRC continues to gain a growing number of powers that can be used to recover unpaid tax and with pressure growing to recover the costs of COVID-19 many suspect that the Treasury may push for a tougher approach from the tax authority in the months and years ahead.

Already the Government is looking to introduce new tax legislation from April 2022 that requires larger businesses to notify HMRC if ‘uncertain amounts’ relating to Corporation Tax or VAT are included in a tax return.

It is thought that this call for transparency will help close gaps in the legal interpretation of tax laws by forewarning HMRC of any areas that need querying or that could lead to a dispute.

To find out more about our corporate tax services, please contact your Seymour Taylor representative today or email enquiries@stca.co.uk or call 01494552100.

This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 14 October 2021.