Small businesses are reportedly driving a significant portion of tax evasion in the UK. The National Audit Office (NAO) has reported alarming figures that indicate these businesses are responsible for 80% of deliberate tax evasion.
This revelation has significant implications for the UK economy, which loses billions of pounds annually due to these dishonest practices. The report calls for a more targeted strategy to address this persistent issue.
Small companies exploit weaknesses in government systems, contributing to 81% of the £5.5 billion lost to deliberate tax evasion in the 2022-23 financial year. Despite the overall tax gap— the difference between tax owed and paid—reducing from 7.4% in 2006 to 4.8% in 2022-23, the share attributed to small businesses has increased sharply.
This lack of focus on performance in this area has enabled these businesses to exploit systemic vulnerabilities, further exacerbating the issue.
The report also highlights “electronic sales suppression” as a significant source of tax loss. Businesses manipulate till systems to underreport revenues, often using specialised software. While HMRC has powers to address this, including fines of up to £50,000, these measures are reportedly underutilised.
The ease of setting up companies in the UK from anywhere globally leaves the country vulnerable to tax evasion by fraudulent businesses. Stricter registration rules have been prompted to counter this vulnerability.
He suggested that tighter controls and increased compliance efforts could yield substantial revenue and improve value for money.
“While the vast majority of businesses pay the tax that is due, we will continue to use our civil and criminal powers against the determined minority who refuse to play by the rules.”
HMRC plans to collaborate with bodies such as the Insolvency Service and Companies House to tackle tax evasion in the retail and online sectors. Closing the gaps identified by the NAO is a priority.
The report by the National Audit Office has revealed a concerning trend of tax evasion among small businesses in the UK. The increasing share of tax evasion attributed to these businesses underscores the need for a more effective and targeted approach.
By implementing stricter controls and collaborating with relevant bodies, it is hoped that HMRC can reduce the tax gap and reclaim much-needed revenue for public services. The issue of tax evasion among small businesses remains a significant challenge that requires immediate and sustained attention.
