The UK needs to wake up to the enormity of small 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. The Fair Tax Foundation has itself provided research and analysis detailing what is going wrong and why, not least in connection with the Silicon Six and their enduring global tax gap. Tax avoidance by a significant number of multinational enterprises is very much a real and substantive issue.
However, 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 tax havens via its Overseas Territories (e.g., Cayman Islands) and Crown Dependencies (e.g., Jersey).
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, small business tax avoidance received little attention – 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.
We’ve launched a new information hub that details the scale of small business tax avoidance, and what can be done to rectify it
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 ‘cheats’ gain market share even if they are less productive, reducing the market share of more productive, tax compliant businesses.
Of course, 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.
Our new Tackling Small Business Tax Avoidance Information Hub sets out the scale of small business tax avoidance in the UK, and what can be done to tackle it.
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) 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, with small businesses identified as being responsible for 60% of all shortfalls (i.e., across all taxes).
It needs to be noted that the HMRC tax gap analysis 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. 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.
Solutions to tackling small business tax avoidance
Incorporation in the UK brings with it massive benefits to company owners. Not least, it provides shareholders with limited liability for the debts of the company and establishes the company as a legal person separate from its owners. Limited liability status is a precious gift, but rights must come with responsibilities. 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.
We have identified a number of measures that, if implemented robustly, would not only substantially reduce small business tax avoidance but uplift productivity. These include:
1) Small business financial reporting transparency needs to be enhanced
2) Beneficial ownership transparency needs to be enhanced
3) The costs of establishing a company needs to be increased further
4) HMRC needs more resources
5) Sanctions need to be toughened
6) Large e-commerce platforms, such as Temu, need to be subjected to much more scrutiny
Our Tackling Small Business Tax Avoidance Information Hub unpacks the detail of each of these measures, many of which are pertinent to the whole of Europe. We hope to update this information on a regular basis and celebrate positive developments as and when they happen.
Headline image generated with Perplexity AI.
