The NAO report revealed that small companies exploit weaknesses in government systems, contributing to 81% of the £5.5 billion lost to deliberate tax evasion in the 2022-23 financial year.
Despite improvements in the overall tax gap, the share attributed to small businesses has increased sharply over the past five years, rising from 44% in 2018-19 to 60% in the latest figures.
The report criticized HMRC for lacking a targeted strategy to tackle tax evasion by small businesses, resulting in a lack of focus on performance in this area.
HMRC's measures to combat electronic sales suppression, where businesses manipulate till systems to underreport revenues, have been underutilized, despite having the power to impose significant fines.
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