The latest tax gap figures for 2022/23 reveal that £39.8 billion, equivalent to 4.8% of the theoretical tax take, was not received by HMRC. Although this percentage has decreased, the absolute amount has risen by £1.7 billion. Let’s delve into the specifics of the PAYE employer compliance tax gap to understand its implications.

PAYE employer compliance accounts for £385.9 billion out of the total theoretical tax take of £823.8 billion. Employers now collect nearly half of all tax liabilities on behalf of HMRC. Non-compliance in this area could have significant financial consequences for the exchequer.

The PAYE employer compliance tax gap represents the difference between the Income Tax and National Insurance Contributions that should be collected through PAYE (due on earnings and other income from employment) and the actual amount paid. In 2022/23, this gap amounted to £3.3 billion or 0.9% of the expected payment. Notably, large businesses contributed nearly £2 billion to this figure.

While smaller businesses seem highly compliant with their PAYE filing obligations, they still play a significant role in the overall tax gap. Small businesses account for 60% of the tax gap (£24 billion). Surprisingly, this gap isn’t primarily due to tax avoidance or evasion; instead, it results from errors and failures in filing returns. The Association of Taxation Technicians (ATT) suggests that improving HMRC customer services and granting agents access to digital services could be a step toward addressing this issue.

In summary, smaller businesses should remain vigilant when filing returns with HMRC to avoid contributing to these tax gap statistics and being the subject of an HMRC enquiry.