The Government has announced plans to raise an additional £7.5 billion by stepping up efforts to close the tax gap – the difference between the tax HMRC expects to collect and what is actually paid.

Figures published on 19 June show that £46.8 billion in tax went unpaid in the 2023-24 tax year. That’s 5.3% of the total tax due, slightly up from previous estimates.

Small Businesses Under the Spotlight

The data reveals that small business non-compliance accounts for 60% of the total tax gap, with Corporation Tax accounting for 40%. The most common causes are:

• Failure to take reasonable care (31%)
• Error (15%)
• Tax evasion (14%)

As a result, HMRC is intensifying compliance work – particularly within the small business sector – with a clear aim to improve accuracy, reduce mistakes, and clamp down on evasion.

What’s Changing?

The Government has committed £1.7 billion over four years to fund more HMRC staff, including 5,500 compliance officers and 2,400 debt management roles.

What This Means for Your Business

With HMRC stepping up compliance efforts, now is the time to make sure your business accounts and tax affairs are in order.

While HMRC says the majority of taxpayers pay what they owe, the pressure is clearly growing to close gaps and improve standards – particularly among smaller businesses.

Should you be worried?

Within the regulations under which HMRC operate, they can ask to review any Return, whether personal or corporate, and if they want to can go back up to six years in their questioning, if they think there are grounds to do so.

As you can imagine, this could be extremely worrying and distracting!

Our clients don’t need to worry, as we handle HMRC on their behalf should the need to do so arise, and we include all clients in our Fee Protection scheme for no additional cost. This is because it covers our fees to fight for our clients’ position until HMRC close their case, without worrying about budgets. 

If you don’t have any Fee Protection cover, then yes, you should be aware of an increasing risk of unwanted interest from HMRC. They can select anyone for their random questions, without any explanation or justification.

Our View

It’s in all of our interests that those who aren’t paying the tax that they should, do so in future, but part of the process of ‘encouraging’ them to do so may require HMRC to look into the affairs of those who are already doing the right thing.

Our advice would be to ensure your submissions are made on time, and in full. Avoid attracting attention wherever you can and ensure your responses to any questions are prompt. 

Again, if you’re a client of ours, simply send HMRC to speak to us, or send on any communications you receive from them, and we’ll handle them on your behalf, leaving you to concentrate on the day to day of your business.

See: https://www.gov.uk/government/news/tax-gap-estimated-at-53