HMRC Focus Shifts to Small Businesses: 56% of UK's Tax Gap Attributed to SMEs

Small businesses in the UK are increasingly shouldering the burden of the country's "tax gap," according to the latest figures released by HM Revenue and Customs (HMRC)

Multinational law firm Pinsent Masons reveals that small businesses now account for 56% of the tax gap, amounting to a staggering £20.2 billion in a single year. This marks a significant increase from the previous year when small businesses were responsible for 40% of the tax gap, equivalent to £12.8 billion.

Steven Porter, Partner and Head of Tax Disputes and Investigations at Pinsent Masons, highlights the shifting focus of HMRC towards small businesses. While the tax authority has made considerable efforts to reduce unpaid taxes from large businesses and high net worth individuals, the attention given to small and medium enterprises (SMEs) is still lacking.

Investigations into small businesses often take longer to complete, leading to persistent issues that can span several years. Porter cites cases where small businesses have continued to utilize tax avoidance schemes long after they were phased out among larger entities and wealthy individuals.

Porter warns that non-compliant small businesses should brace themselves for potential HMRC investigations in the coming years. The figures indicate a clear direction for HMRC, emphasizing the need for proactive measures such as seeking professional advice to address any potential compliance issues before they escalate.

Pinsent Masons also reports that the overall tax gap for the UK remains steady at 4.8% of the total tax theoretically due, mirroring last year's figure. The tax gap represents the disparity between the amount of tax that HMRC should ideally collect and the actual amount collected. Much of this gap can be attributed to tax avoidance and evasion practices.

These latest findings from HMRC underscore the increasing significance of small businesses in the tax landscape. As the gap widens, it becomes crucial for HMRC to address tax compliance among SMEs. With small businesses accounting for a significant portion of the tax gap, it is imperative for HMRC to allocate more resources and attention to this sector. By doing so, the tax authority can work towards reducing the gap and ensuring a fair and equitable tax system for all.

Small businesses, in turn, should recognize the heightened scrutiny and potential consequences they may face. Taking proactive steps to ensure tax compliance, such as seeking professional advice, can help mitigate the risk of HMRC investigations and penalties. As the landscape evolves, it is essential for both HMRC and small businesses to collaborate effectively in closing the tax gap and maintaining the integrity of the tax system.

How to keep your business compliant

If businesses are concerned about the implications of HMRC investigations and tax compliance, seeking guidance from a qualified accountant would be a practical and prudent step forward. Accountants possess the expertise and knowledge to navigate the complexities of tax regulations, offering valuable advice on ensuring compliance and minimizing potential risks. By engaging with an accountant, businesses can gain a better understanding of their tax obligations, implement effective tax strategies, and address any concerns or uncertainties they may have. Proactive collaboration with professionals in the field can provide peace of mind and help businesses navigate the evolving landscape of tax regulations with confidence.

Article by Business Matters