UK businesses could owe £18.6bn in unpaid taxes as ‘tax gap’ rises 40% in six years – CMS report

Corporations in the UK could be underpaying as much as £18.6bn in tax to HM Revenue & Customs, according to a new report from CMS.

The ‘Tax Litigation Report 2026’ showed that the corporate tax gap – HMRC’s estimate between tax owed and tax actually paid – rose to £18.6bn in the 2023/24 tax year, nearly tripling over the past six years. Companies with the most ‘tax under consideration’ – namely financial services, retail and telecoms-related businesses – should prepare for heightened HMRC attention, CMS warned.

HMRC has been ramping up scrutiny on businesses to close a growing tax gap that has skyrocketed 40% over the past six years, with the tax office recruiting more compliance officers, expanding reporting requirements and strengthening its information-gathering powers.

That tax gap is mostly being driven by errors, differences in legal interpretation and failure to take reasonable care, with such inaccuracies accounting for 58% of the estimated shortfall. Tax evasion and avoidance accounted for an estimated 15% of the gap.

International tax liabilities is also an area that that HMRC is focusing on, with reviews likely to examine transfer pricing, double tax relief eligibility and diverted profits tax activities.

Nicola Hine, a tax litigation partner at CMS, said: “Our analysis of HMRC’s data, combined with insights from recent court judgments, reveals a landscape where international tax issues dominate, employment related risks are accelerating sharply and corporation tax exposures, already tripling over six years, are shaping investigative priorities.”

CMS notes that HMRC’s litigation record is strong, with a more than 70% success rate across all courts. That rises to 93% for first-tier tribunal cases, though successes at the Supreme Court tend to fluctuate year-to-year, in part because those cases tend to be more complex and hinge on finely balanced technical interpretations. 

Those success rate swings – anything between 40% and 100% – are also more noticeable because there are fewer appeals that are elevated to the court given they must have significant public, constitutional or legal importance to be heard.

Against this backdrop, CMS recommends companies should be litigation-ready from the moment they receive even an informal information request by HMRC. Companies should also consider settling disputes early given HMRC’s high success rate, with alternative dispute resolution now becoming more prevalent, CMS said.