HMRC Tax Investigations Target Small Businesses

HMRC’s latest figures show a clear trend: small businesses now account for around 60% of the UK’s total “tax gap” — the difference between the tax HMRC expects to collect and what’s actually paid.

Back in 2022, I reported that HMRC’s tax investigations were remarkably efficient — recovering £16 in extra tax for every £1 spent investigating individuals and small businesses (Accountancy Daily), and an even greater £69 for every £1 spent investigating large companies (City AM).

However, the latest reports and 2025 tax-gap data show that HMRC is now shifting its attention more heavily toward smaller businesses — those it believes are responsible for the largest share of unpaid tax.

With the tax gap estimated at nearly £47 billion for 2023/24, small businesses are now firmly in HMRC’s sights.

Tax Investigations: What the Data Shows 📊

HMRC’s latest Measuring the Tax Gap report reveals several key points:

• The overall tax gap has grown from 6.4% in 2011 to 15.8% in 2023/24 (of anticipated tax revenue).

• Small businesses contribute 60% of that total gap — more than large and mid-sized businesses combined.

• Common causes include mistakes in VAT, under-declared income, and not keeping proper expense records.

Put simply, HMRC sees small business non-compliance — whether accidental or deliberate — as the biggest area for potential recovery.

Why Small Businesses Are Under More Scrutiny 🔍

1. Digital Data Matching

   HMRC now cross-checks data from banks, card providers, Companies House and digital platforms to spot inconsistencies.

2. Software Visibility With Making Tax Digital and online filing, HMRC receives transaction-level detail from accounting software — giving it far greater insight than ever before.

3. Behavioural Trends HMRC’s own analysis shows that small-business “failure to take reasonable care” is a major contributor to the gap — a polite way of saying avoidable errors.

4. Enforcement Budget Increases Government spending plans have allocated additional funds to expand compliance teams, meaning more routine enquiries and targeted investigations.

   
   

Protect Yourself from a Tax Investigation 🛡️

Even well-run businesses can be selected at random. To reduce the risk — and the potential cost — you can:

• Review our related article: 8 tips to avoid a tax investigation by HMRC 📩

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• Consider tax Investigation Insurance, discussed here: Protect yourself from the costs of a tax investigation

Key Takeaway 📌

Small businesses are now the main focus of HMRC’s compliance activity. By keeping accurate records, using modern software, and seeking timely advice, you can reduce both your risk — and your stress — should that dreaded HMRC letter ever land on your doormat.

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