Updated: July 2026

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 have provided research and analysis detailing what is going wrong and why. 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.¹ 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, ² 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.

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.

On 30 June 2026, the Fair Tax Foundation presented oral evidence to the UK’s House of Commons Treasury Committee’s inquiry on ‘tax and duty non-compliance on high streets’. The meeting aimed to examine tax evasion, business rates avoidance and the dodging of tobacco and vapes duty on the UK’s high streets. Substantive discussion progressed on the UK’s substantial small business tax gap, the growth of phoenixing, the adequacy of HMRC resourcing and the degree to which existing sanctions and their deployment are sufficient. A video recording and transcript of the session are available. Much of the evidence submitted aligned with the analysis and proposals detailed below. However, in a number of instances, the supporting evidence has subsequently been further updated where more current data has become available.

HMRC say small business is responsible for 62% of an annual £59.2bn tax shortfall in the UK

HMRC’s most recent tax gap analysis (June 2026) created national headlines when it was reported that:

• the UK tax gap (the difference between tax due and tax received) leapt to a record £59.2bn in 2024-25, an increase of 26% on the previous year’s estimate
• the UK tax gap has increased by 60% over the past five years
• the largest component of the tax gap, by tax type, was corporate income tax at £21bn (this has almost doubled over the past five years and now accounts for 35% of the total shortfall)
• small businesses³ dominate the corporation tax shortfall, accounting for £17.3bn (this is a ‘central estimate’, with the ‘upper estimate’ an enormous £28.3bn!)
• small businesses are responsible for 62% of all shortfalls (i.e., £36.7bn across all taxes)

The HMRC tax gap analysis, although world leading, has three major shortcomings. It fails to substantially account for profit-shifting by multinationals, which has been estimated to cost the UK c.£14bn per year in lost tax revenue. Secondly, it makes a shallow assessment of the impact of the shadow, illegal economy (such as cash for services). Thirdly, a large portion of the tax gap (by behaviour) is attributed to ‘failure to take reasonable care’ (£20.8bn) and ‘error’ (£9.3bn): terms which at first glance seem rather innocuous, but which actually capture behaviours many would consider to be tax avoidance (such as in the case of the ‘careless mistakes’ of Nadhim Zahawi). It is troubling that the shortfall attributed to ‘failure to take reasonable care’ and ‘error’ have increased by 86% and 75% over the last five years, respectively. With carelessness and error seemingly growing in one direction only.

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.

Analysis from the IMF and World Bank has found significant productivity gaps between firms that comply with existing taxes and regulations and those which do not, and that these large gaps can translate into depressed economy-wide productivity and growth.^{4 5}

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

In Why corporate income tax is the most critical of all taxes we set out why corporate tax is, and should be, a primary concern.

Solutions to tackling small business tax avoidance⁶

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 revenue, 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. Public sentiment is aligned: our annual polling shows that 76% of people want to see all sizes of UK businesses publicly disclosing the taxes they do or don’t pay in the UK.

Until 28th January 2026, we were delighted to say that from 1 April 2027, as mandated in the Economic Crime and Corporate Transparency Act 2023, small business would no longer be able to file abridged accounts, and that profit and loss account and balance sheet disclosure would be required for small, micro-entity and dormant companies.⁷ This would aid curtailment of fraud, illicit financial flows and tax avoidance, wherein ‘small business’ vehicles are commonly used and abused.⁸ It would also 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.

Unfortunately, on 28 January 2026, the UK government quietly temporarily mothballed these proposals via a brief update to its corporate reporting guidance, noting: “Changes to accounts filing will not be introduced in April 2027. The reforms are still under review and a final decision will be announced shortly. Companies will receive at least 21 months’ notice to prepare.” This delay is very disappointing. Not least as every small business in the UK was contacted over the summer of 2025 and notified of the pending changes, that would kick-in during the spring of 2027.

Then, 9 June 2026, it was announced that changes to accounts filings were back on, and would be implemented from 1 April 2028,⁹ but that there would be an option to opt out of publishing this information on the public register.¹⁰

The introduction of the public opt out option completely undermines the entire thrust of the financial transparency proposals and will fundamentally weaken their ability to counter economic crime. We are urging the UK government to reconsider. 

2)        The costs of opening and closing 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.¹¹

It was anticipated that changes agreed in the Economic Crime and Corporate Transparency Act of 2023 would improve matters substantially in the future, and we would see a substantial reduction in the number of “businesses” that were on the UK company register, which is the most bloated in the world.¹² However, it has continued to grow and grow. At end March 2026, 5.5 million companies are registered in the UK, up from 5.1 million in 2023. ¹³

Whilst the UK continues with its obsession of companies being cheaply established within 24 hours, then enormous problems will persist.¹⁴ The cost of establishing a company is still too small at c.£100, 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.2,400 employees, but 815,000 new companies were established in 2025-26 alone.¹⁵ The cost of establishment should be brought closer to the EU average¹⁶ and increased to at least £250, with the proceeds being funnelled into extra resourcing for Companies House to identify wrongdoers quickly.

3)        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 their beneficial owners.¹⁷ 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.¹⁸ 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.¹⁹ Moreover, from November 2025, long overdue identity verification of six to seven million directors and people with significant control began.²⁰ Albeit, there seems to be a growing problem with rogue Authorised Corporate Service Providers (ACSPs) who provide third party assurance to Companies House. As at July 2026, more than three hundred businesses and sole traders had seen their ACSP status either suspended or ceased.²¹ Just one rogue ACSP can create enormous opportunities for fraud and tax evasion. In the year to June 2026, the UK Insolvency Service had been forced to shut down five ASCPs that had between them illegally registered 12,000 overseas companies, providing them with a false UK business presence.²²

It is equally 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. A similar lack of real progress is evident in Bermuda and the Cayman Islands as well. To this end, in December 2025, ourselves and other anti-corruption and tax justice organisations warned that continued delays on offshore transparency is undermining the UK’s credibility in tackling illicit finance.

4)        Sanctions need to be both toughened and implemented more fully

In 2025, 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. In 2024-25, numbers fell further still, to 310.

The same trend is visible when it comes to prosecuting the enablers of tax evasion, which have reduced by 69% over the past five years. Figures obtained under UK freedom of information laws uncovered that fewer than five such prosecutions were brought in 2023-24, down from 16 in 2018-19. Moreover, in nearly nine years, just one prosecution has been advanced under the failure to prevent the facilitation of tax evasion offence introduced by the Criminal Finances Act 2017. Questions need to be asked as to whether legislation is being created that is far too difficult to implement, and/or whether public bodies are shying away from executing their options robustly.

Banning fraudulent individuals from being company directors for a few years seems to be the “go to” sanction, yet it is pitifully weak and sends a signal that robbing the public purse is akin to dropping litter.

We welcome the 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. Robust measures such as these are exactly what is needed. The creation of a new Abusive Phoenixism Taskforce in 2025 at the Insolvency Service is progressing apace. As are Corporate Civil Enforcement Reforms in 2026. But simply disqualifying more directors will not produce the seismic shift that is needed. For that, more directors need to be made personally liable for company taxes, and systemic advances in this area are currently sketchy  – although there may be evidence that HMRC is now deploying Personal Liability Notices and Joint and Several Liability Notices more assertively than previously.

5)        HMRC needs more resources

We welcome the solid commitments recently given by the UK government to close the UK’s tax gap. Not least the extra £1.7bn over four years that will fund an additional 5,500 compliance and 2,400 debt management staff, which it is claimed will enable HMRC to raise £7.5bn a year in extra tax by 2029-30. The business case for investment is strong given that HMRC’s compliance work returned, on average, £23 for every £1 spent on the compliance workforce in 2024 to 2025.

Given the proportion of the UK tax gap that is attributable to small business, the creation of a new team of 350 criminal investigators within HMRC to tackle evasion by small business has real merit, as does the creation of a new high street organised crime unit within the National Crime Agency.

More generally, HMRC’s staffing levels had been falling for a number of years. This had contributed to not just shortfalls in compliance, but also service quality. The reversal of this trend in 2025 is to be commended – with 4,500 FTEs added in 2025, which is a return to its largest headcount in more than a decade at c.70,000. This is absolutely necessary given the new challenges that HMRC faces: “The number of taxpayers in the system is growing, and more of them have increasingly complex tax affairs. Both the global economy and the world of work have changed significantly in the last decade. This is an age of multiple incomes, side hustles, digital transactions, artificial intelligence and cryptocurrencies.”

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.

At the Autumn Budget on 26 November 2025, it was announced that the UK would remove the de minimis exemption, which allows goods valued at £135 or less to be imported without paying customs duty, with changes phased in by March 2029. On 23 June 2026, the Treasury announced it was bringing the end date forward by six months, from 1 March 2029 to 1 October 2028. However, given the US has already eliminated its de minimis exemption (in August 2025) and the EU is removing its €150 exemption (from 1 July 2026, applying a temporary flat €3 customs duty per item, with a permanent full duty system expected by 2028), the UK is arguably moving too slow. Sky News has reported that the total declared trade value of de minimis imports into the UK in the last fiscal year (2024-25) had rocketed to £5.9bn, a 53% increase on the previous year (£3.9bn). There is a real danger of UK attracting more and more custom as a last mover.

In parallel, it was also announced that a review is underway of how VAT can be better collected from businesses trading through online marketplaces, and views are being sought on how the current online marketplace rules can be extended to ensure that all businesses comply with UK VAT rules. Online marketplaces are obliged to collect VAT from overseas suppliers supplying into the UK. However, many overseas suppliers dupe online marketplaces into viewing them as being (erroneously) UK-based, which leads them to not collect VAT from such suppliers – albeit, it could be argued that some of the platforms are complicit in this via poor compliance checks on the real operational residency of suppliers. The seller then either charges VAT and never remits it, under-declares, or simply disappears at the first HMRC enquiry — phoenixing into a new UK shell and repeating the cycle. Such fraudsters essentially have a 20% price advantage (the standard VAT rate) over compliant sellers. We agree with the UK Government’s proposal to make online marketplaces responsible for accounting for VAT on all the sales they facilitate (be they from overseas or relevant domestic sellers). Similar domestic online marketplace liability rules are already in place in other countries, such as Switzerland (for goods) and New Zealand (for specific services).

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

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

• First, it provides shareholders with limited liability for the debts of the company and establishes the company as a legal person separate from its owners.²³ Owners’ personal assets, such as their homes or savings, are not at risk (unless outright criminal or negligent activity has been proven).²⁴
• Second, the moniker of ‘ltd’ confers ‘respectability’, both to consumers and other businesses.
• Third, 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 (which can be secured for a one-off fee of £100²⁵), 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. This is simply unfair and enormously damaging to the UK economy.