The UK tax authority says taxpayers paid £59.2 billion less than they were due to in the 2024/25 fiscal year, a shortfall equivalent to 6.4% of total tax liabilities. Most of that gap was attributed to small businesses, according to the government's summary released on Tuesday.
Officials have set a goal to shrink the shortfall by £10 billion by the 2029/30 fiscal year. However, the authorities acknowledged that progress in reducing underpayments has been slow: the overall rate of tax underpayment has fallen by only one percentage point over the past 20 years.
The tax shortfall arrives against a background of large public borrowing. Britain ran a budget deficit of £128 billion, or 4.2% of gross domestic product, in the last financial year. Finance minister Rachel Reeves has been given a fiscal constraint of £24 billion as she works toward the government's stated objective of balancing day-to-day spending with tax receipts by 2029/30.
Alongside the tax figures, the Office for Budget Responsibility published related numbers on the welfare system. It reported that fraud and error across benefits, including pensions, fell to 3.2% in 2025/26 from a peak of 4.3% in 2021/22 during the COVID-19 pandemic.
The OBR estimated total welfare overpayments of £10.3 billion in 2025/26. Of that sum, £7.4 billion related to universal credit, the benefit paid to people who are unemployed or on low incomes. The OBR noted that more than a quarter of new universal credit claims during the COVID-19 period were incorrect, but that the error and fraud rate for the benefit has been reduced back to pre-COVID levels of just under 10%.
The Department for Work and Pensions broke down the causes of universal credit overpayments in the most recent year: 81% were attributed to suspected claimant fraud, 10% to inadvertent errors by claimants and 9% to errors made by officials.
The tax authority provided a breakdown of reasons behind tax underpayments. It estimated that 35% stemmed from taxpayer carelessness or negligence, 16% from errors, and 12% from deliberate tax evasion. Corporation tax and value-added tax were identified as the most frequently unpaid tax types.
The report reiterated the scale of the fiscal challenge facing ministers. With a sizeable budget deficit and a finite fiscal margin, the government faces constrained options as it pursues the target of eliminating the mismatch between routine spending and tax revenue by 2029/30.
Exchange-rate information included with the data put the conversion at $1 = 0.7567 pounds.