The tax gap is the thing most abhorred by HMRC, the amount of money that lies between the amount of tax owed and paid.
This missing fund has been monitored every year since the 2005/6 tax year and those figures have paved the way for compliance changes across the board.
With the tax gap widening and small businesses taking the blame, what will HMRC do to recoup the lost cash?
Are small businesses to blame for the tax gap?
If you cast your mind back to our discussions of the 2024/25 tax year, as painful as that might be, HMRC collected the largest ever tax bill.
Unsurprisingly, this was mirrored by the tax gap with it having the highest ever cash value at a staggering £59.2 billion.
While it might seem like a big tax bill will inevitably have a big tax gap, the percentages do reveal a concerning story.
The tax gap was 6 per cent in 2023/2024 but rose to 6.4 per cent in 2024/25.
While this is comfortably below the historically high 7.5 per cent that was recorded in 2005/6, it does suggest that the problem is getting worse again.
Small businesses may feel as though they are subject to a blame game whenever the tax gap is mentioned, but they are responsible for 62 per cent of it and have been similarly responsible for at least the past five years.
Mid-size businesses are diligently putting in the work, reducing their contribution from 13 per cent at the start of the decade to a more respectable eight per cent.
However, put the two together under the SME umbrella and that is 70 per cent of the tax gap all in one place – approximately £41.44 billion.
What will make tax compliance improve?
Knowing how to make all small businesses fully tax compliant would make us incredibly popular with HMRC.
What we do know is that small businesses often feel overwhelmed at managing all of the obligations and responsibilities that they are expected to handle.
What they are not expected to do is manage these alone, so having the support of a trusted accounting expert could be the key to tackling the tax gap.
Our experts are on hand to help businesses of any size take control of their obligations.
HMRC is likely to adopt harsher compliance measures or adjust the way that tax is managed if compliance continues to be a persistent problem – look to the statistics if you are ever unsure about why things have been changing so much recently.
The goal of taking £10 billion back from the tax gap by 2029/30 seems loftier by the day, especially if that is tied to cash value rather than percentages.
Our team can work with you to understand not only how to stay compliant with tax but also manage your exposure so that you are operating as tax efficiently as possible.
A lack of tax efficiency is likely why small businesses are such higher contributors to the tax gap than large businesses, which tend to be much better at having an optimised tax bill that can then be comfortably paid.
If HMRC does continue to set its sights on small businesses, it is likely that the measures imposed will ripple out to affect most, if not all, UK companies.
As such, we will be on hand to support you in adapting to any changes so that you can stay confidently tax compliant.
Together, we can close the tax gap. Get in touch with our team today.
