The UK lost an estimated £55 billion-£81 billion of taxpayers’ money to fraud and error in 2023-2024, according to the government financial watchdog the National Audit Office (NAO).
The money that has been detected as lost amounted to £13 billion. Most of that (£9 billion) related to money that HM Revenue and Customs (HMRC) knows that it has not received because of fraud or error. A further £2 billion related to overpaid benefits and £1 billion was detected by other public bodies.
Reasonable care
While HMRC collected about £843 billion of tax, it estimated that there was £30 billion it had not received “due to behaviours analogous to fraud and error,” the report said. Those included a failure to take reasonable care, error, evasion, criminal attacks and the hidden economy.
“HMRC estimates that ‘taxpayers not taking reasonable care’ is the behaviour that contributes the highest share of the overall tax gap, with HMRC estimating it made up 30 per cent (£12 billion) of the overall difference between the tax it should have received, and the amount it actually received in 2022-23,” the report said.
In fact, small businesses were the biggest culprits across all groups and accounted for an estimated £24 billion of the overall sum. They accounted for 60 per cent of the taxpayers committing fraud or making errors – up from 37 per cent back in 2017-18.
Tackling the problem
The NAO said that HMRC’s lack of progress in its plans to make tax digital had contributed to the problem. In addition, HMRC did not know the impact of its levels of customer service on the amount of tax it collected, according to another NAO report published in 2024.
“We also found that HMRC had been ‘unable to cope’ with telephone demand and had consequently fallen short in processing correspondence,” the report said, with about a third of calls going unanswered in 2023-24. The NAO recommended targeting its compliance activities in the most rewarding areas and reducing the complexity of the tax system.
