Britain lost an estimated £59.2 billion ($78 billion) in unpaid taxes during the 2024/25 financial year, according to figures released by HM Revenue & Customs (HMRC) on Tuesday, highlighting
the scale of the government's challenge in boosting public finances.
The tax gap — the difference between the amount of tax owed and the amount actually collected — represented 6.4% of total tax liabilities. HMRC said small businesses accounted for the largest share of the shortfall.
The government has set a target of reducing the tax gap by £10 billion by the 2029/30 financial year. However, progress has been limited, with the overall underpayment rate declining by only one percentage point over the past two decades.
The figures come as the UK continues to grapple with strained public finances. Britain recorded a budget deficit of £128 billion, equivalent to 4.2% of gross domestic product, in the last financial year. Chancellor Rachel Reeves has an estimated £24 billion of fiscal headroom to meet her goal of balancing day-to-day government spending with tax revenues by 2029/30.
HMRC said taxpayer carelessness or negligence accounted for 35% of the tax gap, while genuine errors made up 16%. Tax evasion was responsible for a further 12% of unpaid taxes.
Corporation tax and value-added tax (VAT) were identified as the most common taxes going unpaid.
Separate data published by the Office for Budget Responsibility (OBR) showed that fraud and errors within the welfare system fell to 3.2% in 2025/26, down from a pandemic-era peak of 4.3% in 2021/22.
The OBR estimated total welfare overpayments at £10.3 billion in 2025/26, including £7.4 billion linked to Universal Credit, the UK's primary benefit for unemployed and low-income households.
While more than one-quarter of new Universal Credit claims made during the COVID-19 pandemic were found to be incorrect, the fraud and error rate has since returned to pre-pandemic levels of just under 10%, according to the watchdog.
The Department for Work and Pensions said 81% of Universal Credit overpayments last year were linked to suspected claimant fraud. A further 10% resulted from unintentional claimant mistakes, while 9% stemmed from administrative errors by government officials.
The latest figures underline the twin challenges facing the government as it seeks to improve tax compliance and reduce welfare fraud while working to restore stability to the UK's public finances.
