UK Tax Gap Swells 21% Over the Last Ten Years

UK Tax Gap Hits Another High: Close to £40 Billion

Finance sleuths from RIFT just pulled the levers and poured over the numbers to reveal that the UK’s tax gap – the gap between how much tax we should pay and what we actually cough up – has swelled to nearly £39.8 billion. That’s a 4.5% jump over the last financial year and a 21% climb in the past decade.

Chancellor Rachel Reeves’ New Mission

During Labour’s Spring Statement, Reeves set her sights on chopping the gap. “We’re determined to squeeze the UK’s tax gap and raise roughly £7.5 billion in extra revenue,” she said, waving her policy cape. To back that promise, the government plans to:

Deploy an extra 500 compliance officers at HMRC over the next five years.
Invest £100 million into recruitment and training.
Launch tougher crackdowns on tax dodgers and “cut the loopholes” that let money slip through.

RIFT’s Take: The Road Ahead Is Rough

RIFT’s analysis points out that even with these plans, Reeves faces a gigantic mountain to climb. “It’s a gargantuan challenge to close the gap,” says RIFT, reminding us that the UK’s tax gap is not just a number – it’s a financial stomach‑aching reality for the government. The newly‑announced strategy will need a lot more than a few extra recruits and an investment summit to shave off that piecemeal £39.8 billion leakage.

Key Figures (in a nutshell)

Tax Gap (current year): £39.8 billion
Annual Increase: +4.5%
Decade Increase: +21%
Goal for Extra Revenue: £7.5 billion
HMRC Personnel Boost: 500 new compliance officers
Investment for Recruitment: £100 million

What is driving the tax gap?

A Gist of the Growing Tax Gap

Turns out the biggest culprits behind the UK’s widening tax gap are corporation tax payments—big enough to leave a dent of £13.7 billion in the last 12 months.

What the Numbers Say

Corporation tax gap: +26.9 % – now sits at £13.7 billion
‘Other taxes’ also ticked up by +5.9 %
VAT gap drops by -3.6 %
Income Tax, NI, CGT trimmed by -4.2 %
Excise (alcohol, tobacco, oils) shrinks sharply – -13.8 %

“Labour wants to shrink the gap, which is essential for a booming economy, but chasing every single penny is nearly impossible. While HMRC does a solid job collecting wages, VAT, and excise, the problematic rise in missed corporation tax—especially among SMEs—direly hurts the effort,” says Bradley Post, MD of RIFT.

The Reality for Small Businesses

When the economy turns into a bit of a rough patch, small firms have to dip into their tax reserves to keep the lights on. They end up falling behind on corporation tax, which inevitably adds to the gap.

Labour’s Policies— A Bit of a Catch‑22?

With higher Employer National Insurance Contributions and a boosted National Living Wage, businesses feel the pinch even more. This makes it tough for them to hit that corporation tax deadline on time.

So until the business climate improves, Labour’s pledge to trim the gap while simultaneously raising more tax revenue feels like a paradox. It’s a juggling act that’s hard to make square.