Overwhelming Lack of Tax Collection from Small Businesses: 40% Remain Untaxed according to HMRC
Title: UK's Small Business Tax Payments in Shambles: HMRC Struggles to Control the Chaos
Small businesses in the UK are causing a stir, failing to pay nearly half of the corporation tax they owed in the 2023-24 fiscal year. Critics claim HM Revenue & Customs (HMRC) has lost its grip on the sector, with the tax gap between small businesses and HMRC skyrocketing to an alarming £46.8 billion.
Although the overall tax gap decreased during this period, small companies' unpaid corporation tax soared from £12.3 billion to an astonishing £14.7 billion, according to HMRC's latest report. Out of the estimated £36.7 billion owed by small businesses, only £22 billion was actually collected, leaving an appalling 40.1% unaccounted for.
Small businesses, defined as companies with annual turnovers below £10 million and fewer than 20 employees, accounted for less than half of the UK's tax gap in the 2019-20 fiscal year. However, their share has now ballooned to a whopping 60%.
Dan Neidle, founder of the Tax Policy Associates think-tank, commented, "HMRC has done an impressive job reducing the large company tax gap in the last 20 years. But they seem to have lost control of the small company tax gap."
Small businesses frequently find the tax system complex and HMRC unresponsive when they raise concerns, according to the Federation of Small Businesses. Tina McKenzie, the policy head, stated, "HMRC needs to focus on answering its phones, reducing response times, and helping people navigate the tax system. This would improve the tax take and reduce the productivity hit."
In total, HMRC collected £829.2 billion in taxes during the 2023-24 fiscal year. Though small businesses were the largest contributors to the tax gap, wealthier individuals comprised the lowest proportion of the tax gap at around 5%.
Critics argue that HMRC may be underestimating the tax gap from wealthy individuals, given recent warnings by the National Audit Office. Caitlin Boswell, head of advocacy and policy at Tax Justice UK, a pressure group, stated, "Evidence suggests that the level of tax non-compliance among the super-rich is far higher than estimated, with eye-watering sums of hoarded wealth being held offshore and out of sight of HMRC."
In an effort to address the issue, the government has provided £1.7 billion to HMRC over the next four years for the recruitment of an additional 5,500 compliance and 2,400 debt management staff. The government aims to raise an extra £7.5 billion to close the tax gap, stating, "We are determined to go further and faster to make sure everyone pays their fair share."
However, HMRC's ability to achieve this goal is questionable, as enforcement efforts have not scaled effectively with the growing scale of the small business tax gap. Furthermore, previous measures, such as targeting corporation tax, have yet to prove fully effective in addressing the growing problem.
In conclusion, the UK's small businesses are playing a significant role in the country's unpaid tax landscape. HMRC's current compliance and enforcement efforts have struggled to keep up with the rising non-compliance among this sector, leaving an alarmingly large tax gap.
- The struggle for HMRC to manage the growing small business tax gap is a matter of intense debate in the realm of general-news and politics, with critics arguing that the current financial situation is evidence of HMRC's losing grip on the sector.
- Amid the concern over the £46.8 billion tax gap between HMRC and small businesses, wealthier individuals are contributing less to the issue, with their proportion estimated at around 5%, raising questions about the effectiveness of HMRC's financial enforcement in other areas.
