The £59 billion question: Can HMRC close the tax gap?

Every year, billions of pounds of tax that should be paid to HMRC remain uncollected in the UK. This shortfall, known as the tax gap, is the difference between the amount of tax that is theoretically due and the amount that is ultimately collected. 

For 2024/25, the UK tax gap is estimated at £59.2 billion, equivalent to 6.4% of the total tax take. HMRC has emphasised that this represents a fall in percentage terms since the 7.5% level when records began in 2005/06.  However, with the average percentage tax gap in the subsequent years being around 6.2%, the 2024/25 figure does not actually seem to represent the improvement being publicised. Perhaps more significantly, at nearly £60 billion, the monetary value of the tax gap is the largest it has ever been. 

HMRC is therefore expected to respond to these figures by placing even greater emphasis on tackling non-compliance and will no doubt refer to plans previously announced by the government, which it believes will raise a further £10 billion per year by 2029/30.

To support this objective, HMRC has already begun strengthening its compliance and enforcement capabilities. The department is actively recruiting Criminal Investigators into its Fraud Investigation Service, further expanding its capacity to identify and pursue the most serious cases of suspected tax fraud.

Technology is also playing an increasingly important role in HMRC’s compliance strategy. The department has entered into a 10-year agreement with British technology firm Quantexa, to implement an AI-driven data platform designed to identify fraud, trace misallocated payments and reduce response times within the department. In addition, HMRC has rolled out Microsoft Copilot to approximately 28,000 of its staff, with plans to widen the scope in the future. 

While HMRC intends to use AI tools to assist with routine administrative tasks such as drafting correspondence and reports, the department has also announced that compliance officers involved in enquiries and investigations will utilise AI to analyse taxpayer data, identifying patterns and highlighting potential areas of risk. HMRC hopes that these capabilities will enhance its risk assessment processes and enable resources to be targeted more efficiently. 

HMRC has been bullish about its commitment to fully utilise its compliance powers. In a recent press release, the department stated that it intends to carry out more than 30,000 interventions during 2026 and 2027 as part of its wider strategy to combat tax fraud, avoidance and economic crime. 

Particular attention has been given to businesses operating on the high street, where HMRC believes some premises are being used to facilitate money laundering and tax evasion.

To address these risks, HMRC has established a dedicated High Street Organised Crime Unit. The unit has already conducted unannounced visits to businesses across the UK and is expected to continue this activity, utilising its powers to download and review electronic till data, issue warning letters, make arrests and seize goods where appropriate. 

Reducing the tax gap continues to be a key priority for HMRC. With increased investment in technology, data analytics and specialist compliance resources, HMRC plans to become significantly more sophisticated in its approach to identifying non-compliance. 

HMRC’s initiatives are likely to mean that more taxpayers can expect to face compliance checks, enquiries or investigations. Taxpayers should therefore ensure that their tax affairs are accurate, up to date and capable of withstanding increased scrutiny.  Specialist advice should therefore be obtained where there are any areas of doubt, and if you have received a letter from HMRC, are currently under enquiry or wish to make a voluntary disclosure of unpaid tax, Crowe UK's Tax Disputes and Investigations team can provide expert support and guidance.

To discuss your circumstances, get in touch with your usual Crowe UK contact.