The ‘Tax Gap’—the difference between the tax HMRC expects to collect and what it actually receives—is widening. According to new data published on 19 June 2025, a staggering £46.8 billion went uncollected in the 2023–24 fiscal year. That’s 5.3% of all tax due, edging slightly higher than previous estimates and putting increased pressure on the government to act.
Now, in a bid to claw back lost revenue, the government has pledged to raise an extra £7.5 billion by tightening the net. And small businesses are finding themselves under sharper scrutiny than ever before…
Data reveals that small business non-compliance accounts for 60% of the Tax Gap and Corporation Tax accounting for 40%. The most common causes are:
- Failure to take reasonable care
- Error
- Tax evasion
As such, HMRC is intensifying its work on compliance – particularly within the small business sector – with a clear aim to improve accuracy, reduce mistakes and clamp down on tax evasion. The government has committed £1.7 billion over four years to fund 5,500 more compliance officers and 2,400 more debt management roles at HMRC.
Meanwhile, as we all know, HMRC’s Making Tax Digital (MTD) programme continues to expand. It’s expected to generate £4 billion in additional VAT over the next four years by reducing errors. MTD for Income Tax comes into force from April 2026 – this is forecast to raise £1.95 billion in additional tax 2030.
What does all this mean for my business?
With HMRC stepping up, now is the time to make sure your business accounts and tax affairs are in order.
One of the biggest changes on the horizon is Making Tax Digital (MTD) for Income Tax, due to start in April 2026. Initially, it will affect anyone who earns over £50,000 from self-employment or property income. In future years, this limit will drop to £30,000 and then to £20,000 by April 2028.
Under MTD, you’ll need to:
- Keep digital records of your income and expenses
- Submit quarterly updates to HMRC using MTD-compatible software
- File an annual final declaration
The majority of taxpayers pay what they owe but the pressure is on to close gaps and improve standards. If you are unsure whether your current accounting systems and processes meet HMRC’s expectations, please call one of Business Services Team on 01223 810100.
