Britons paid £59 billion too little tax last year, government says

LONDON, June 23 (Reuters) - Britons paid £59.2 billion ($78 billion) less tax than they should have in the 2024/25 financial year, equivalent to 6.4% of the total, with most of the shortfall coming from small businesses, the country's tax office said on Tuesday.

Britain's government aims to reduce this shortfall by £10 billion by 2029/30, but past progress has been slow and the overall underpayment rate has fallen by just 1 percentage point over the past 20 years.

Britain ran a budget deficit of £128 billion or 4.2% of gross domestic product last financial year, and finance minister Rachel Reeves has only £24 billion of leeway to hit a goal of balancing day-to-day spending with tax revenue by 2029/30.

Separate figures from the government's Office for Budget Responsibility showed fraud and error in the welfare system, including pensions, dropped to 3.2% in 2025/26, down from a peak of 4.3% in 2021/22 during the COVID-19 pandemic.

Overall overpayments were estimated at £10.3 billion in 2025-26, of which £7.4 billion was for universal credit, a benefit paid to people who are unemployed or on low incomes.

More than a quarter of new universal credit claims during the COVID-19 pandemic were wrong, but the rate of fraud and error for universal credit has now been reduced to pre-COVID-19 of just under 10%, the OBR said.

Britain's Department for Work and Pensions said 81% of universal credit overpayments last year were due to suspected fraud by claimants, while 10% was due to claimants' inadvertent errors and 9% was a result of errors by officials.

The tax office estimated 35% of tax underpayments were due to carelessness or negligence by taxpayers, 16% was due to error and 12% down to tax evasion.

Corporation tax and value-added tax were the most common taxes that were not paid, it added.

($1 = 0.7567 pounds)

(Reporting by David Milliken, editing by Andy Bruce)