Why small business tax dodgers should be as big a concern as big business tax avoidance

There are good and bad actors in both large and small business

The media is full of stories detailing the tax avoidance of large multinationals. Amazon and Facebook are classic examples. The Fair Tax Foundation has itself provided research and analysis detailing what is going wrong and why. ¹ Tax avoidance by a significant number of multinational enterprises is very much a real and substantive issue.

However, we have always stressed that tax avoidance by small business is also a real and substantive issue. Especially in the UK, which sits at the centre of a web of influential tax havens via its Overseas Territories (e.g., Cayman Islands) and Crown Dependencies (e.g., Jersey), that are arguably responsible for over a quarter of the world’s corporate tax losses.² We believe that tax transparency is just as much an issue for small business as large business. The same goes for disclosure of who actually owns and controls companies, no matter what their size.

Until very recently, ³ small business tax avoidance received little attention in the UK: with many political and financial commentators indulging in the lazy trope of “big business bad, small business good”. But business ethics is not a function of corporate size. There are good and bad actors in both large and small business.

Much of what follows relates to the UK, but the issues described are material across Europe – especially the solutions outlined. We intend to broaden our research and analysis in the area over the coming months.

It should also be borne in mind that a great many businesses readily appreciate that tax contributions are the lifeblood of a flourishing society, funding essential services such as healthcare, education, policing and transport. They also understand better than anyone that corporate tax dodging not only robs the public purse, but distorts national economies, depresses productivity and undermines the ability of business to compete fairly.

HMRC say that small business is responsible for 60% of an annual £47bn tax shortfall in the UK

HMRC’s most recent tax gap analysis (June 2025) created national headlines when it was reported that:

• the UK tax gap (the difference between tax due and tax received) had grown to a record £46.8 billion in 2023-24, and was up 37% on four years previous ⁴
• the largest component of the tax gap, by tax type, was Corporation Tax at £18.6 billion (this has doubled over the last five years and now accounts for 40% of the total shortfall)
• the corporation tax gap for small businesses now amounts to £14.7 billion, with just 60% of all expected corporation tax being paid
• small businesses are responsible for 60% of all shortfalls (i.e., across all taxes)

It needs to be noted that the HMRC tax gap analysis, whilst world leading, has two major shortcomings. It substantially fails to account for profit-shifting by large multinationals, which has been estimated to cost the UK c.£14bn per annum in lost tax revenue.⁵ Secondly, it makes a shallow assessment of the impact of the shadow, illegal economy (such as cash for services).

Nevertheless, it is clear that tax avoidance is a major issue among small business, with 40% of all corporation tax due from small businesses not being paid.

Tax dodging doesn’t just hurt public services, it curtails economic growth and depresses productivity

Aggressive tax avoidance and evasion don’t just undermine the funding of vital public services, they negatively distort national economies and undermine the ability of business to compete fairly.

Tax evading corporate ‘cheats’ enjoy a potentially large implicit subsidy that allows them to stay in business despite low productivity. As a result, these ‘cheats’ gain market share even if they are less productive, reducing the market share of more productive, tax compliant businesses.

Productivity gaps between firms that comply with existing taxes and regulations and those which do not are significant, and these large gaps can translate into depressed economy-wide productivity and growth.^{6 7}

Many small businesses want to pay their fair share

Across Europe, business of every size and shape are using the Fair Tax Mark label to demonstrate they pay the right amount of corporate income tax at the right time and in the right place – following both the spirit and the letter of the law. We have developed tailored certification standards to fit every size of business, from a global multinational to a micro-enterprise.

People have a passion for supporting local companies that pay their taxes, be they coffee shops, grocery stores or community energy providers. The following are examples of Fair Tax Mark certified small business that have embraced the need for additional tax disclosures and policy commitments, which they use to clearly evidence their leading-edge approach to responsible tax conduct. With many more listed among our accredited businesses.

• Friendly Soap
• Energy4All
• On the Eighth Day Co-operative
• Jerba Campervans
• Lendology CIC

Solutions to tackling small business tax avoidance⁸

1)        Small business financial reporting transparency needs to be enhanced

In the UK, for a number of years, small businesses have been allowed to file abridged accounts at Companies House that provide no information whatsoever on income, profits and taxes paid. From our inception, we have been urging that small business (including micro-entities) should publish the fullest set of financial statements.⁹ Public sentiment is aligned: our annual polling shows that c.75% of people want to see all sizes of UK businesses publicly disclosing the taxes they do or don’t pay in the UK. We are therefore delighted to say that from 1 April 2027, as mandated in the Economic Crime and Corporate Transparency Act 2023, it is planned that small business will no longer be able to file abridged accounts, and that profit and loss account and balance sheet disclosure will be required for small, micro-entity and dormant companies.¹⁰ This will not only aid curtailment of illicit financial flows and tax avoidance, but enhance the ability of markets to operate more optimally as suppliers, creditors, consumers and other stakeholders are better informed in their decision-making. In particular, small business will benefit as they are more likely to rely upon Companies House data to inform business decision making. One topical example of why regulations need to change is the example of PPE Medro, which had revenue in the region of £200m but did not report its income, profit or taxes paid.

2)        Beneficial ownership transparency needs to be enhanced

The Fair Tax Foundation’s focus is to encourage responsible tax conduct; but an underappreciated key component of our Fair Tax Mark accreditation standards is the requirement that a business disclose its beneficial owners.¹¹ Anonymously owned companies are one of the key tools used by money launderers and tax dodgers alike, with opaqueness allowing them to hide illicit gains and taxable assets from law enforcement and tax inspectors.¹² The UK was, commendably, one of the first countries in the world to introduce a public beneficial ownership registry, in 2016 – it is both free and open to all.¹³ Moreover, from November 2025, long overdue identity verification of six million directors and people with significant control will begin.¹⁴ However, it is vital that the same corporate transparency requirements apply to UK Overseas Territories and Crown Dependencies, especially given their role as substantive tax havens. This is currently not the case. For example, the British Virgin Islands have, after much delay, drafted proposals for access to their database of corporate beneficial ownership. However, these proposals are woefully inadequate.

3)        The costs of establishing a company needs to be increased further

The UK’s company register was an international laughing stock for many years, with the likes of ‘Adolf Tooth Fairy Hitler’ appearing as a company director, and addresses given such as ‘Street of the 40 Thieves’. It has been an international factory for fraudsters, tax dodgers and organised crime to create and run criminal enterprises. There are likely many tens of thousands of illicit enterprises still registered in the UK, perhaps hundreds of thousands.¹⁵ It is to be hoped that changes agreed in the Economic Crime and Transparency Act of 2023 will improve matters substantially in the future, and we will see a substantial reduction in the 5.4 million “businesses” that are on the UK company register, which is the most bloated in the world.¹⁶ But whilst the UK continues with its obsession of companies being cheaply established within twenty-four hours, then enormous problems will persist. The cost of establishing a company is still too small, which means Companies House continues to be starved of the resources it needs to police the millions of companies on the UK register. Companies House has c.2,000 employees, but 850,000 new companies were established in 2024. The cost of establishment should be brought closer to the EU average¹⁷ and increased to at least £250, with the proceeds being funnelled into extra resourcing for Companies House to identify wrongdoers quickly.¹⁸

4)        HMRC needs more resources

We welcome the recent commitments given by the new Government in this regard, but it also needs to move away from trying to do tax compliance on the cheap. It cannot be right that a third of HMRC’s staff receive salaries that are close to the minimum wage, and it should not come as a surprise that staff numbers have actually been falling due to the difficulty of recruiting people at poverty pay levels. The business case for further investment is strong given that every pound that HMRC invests on tax compliance has average returns of £23.¹⁹

5)        Sanctions need to be toughened

Banning fraudulent individuals from being company directors for a few years is pitifully weak and sends a signal that robbing the public purse is akin to dropping litter. Earlier this year, the UK’s Public Accounts Committee criticised a 50% fall in the number of criminal prosecutions by HMRC for tax evasion between 2018-19 and 2023-24 (which reduced from 749 to 344), concluding that the UK had “too little deterrent” for evasion.²⁰ We welcome the new Government’s stated intention to crack down on phoenixism by increasing the use of securities and making more directors personally liable for the taxes of their company.

6)       Large e-commerce platforms need to be subjected to much more scrutiny

The growth of e-commerce platforms has been astounding in recent years, enabling small businesses from around the world to reach customers as never before. Unfortunately, the tax conduct of many of largest platform providers, such as Amazon, Shein and Temu has been found to be questionable. Moreover, there have been repeated exposes of how significant numbers of businesses are using these platforms to avoid and evade tax obligations. For example, overseas sellers can evade VAT by falsely presenting themselves as UK established for VAT purposes. Existing tax regulations are proving to not be fit-for-purpose on multiple levels and need urgent consideration. In particular, a substantial lowering of national de minimis import duty thresholds, a broadening of platform deemed seller obligations (making them responsible for collecting and remitting taxes and levies) and a review of the total tax contribution being made, both in source and destination markets.

Limited liability is a precious gift, but rights must come with responsibilities

Incorporation in the UK brings with it massive benefits to company owners.

• Firstly, it provides shareholders with limited liability for the debts of the company and establishes the company as a legal person separate from its owners.²¹ Owners’ personal assets, such as their homes or savings, are not at risk (unless outright criminal or negligent activity has been proven).²²
• Secondly, the moniker of “ltd” confers ‘respectability’, both to consumers and other businesses.
• Thirdly, there are tax advantages, stemming from differences in the tax treatment of employment income and the taxing of profits.

In return for these substantial benefits, it is reasonable to expect businesses of all sizes to be actively engaged in running their companies within both the spirit and letter of the law. Ignorance is not a valid excuse. Neither is incompetence. The full weight of the law should be brought to bear on all transgressors, otherwise businesses that play by the rules have little chance of competing – which is simply unfair and enormously damaging to the UK economy.