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 HM Revenue & Customs (HMRC) expects to collect and what is actually paid.
Figures published on 19 June show that HMRC collected £829.2 billion in taxes, with £46.8 billion in tax going unpaid in the 2023-24 tax year. That is 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%); and
- 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 is 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.
Meanwhile, HMRC’s Making Tax Digital (MTD) programme continues to expand. It is 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, and this is forecast to raise £1.95 billion in additional tax revenue by 2030.
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.
One of the biggest changes on the horizon is Making Tax Digital (MTD) for Income Tax, due to start from 6 April 2026. Initially, it will affect self-employed individuals and landlords with annual combined business or property income of more than £50,000. This threshold is set to reduce over time, with a planned decrease to £30,000 from 6 April 2027 and then to £20,000 from 6 April 2028.
Partnerships, LLP’s and Limited Companies will be excluded for now, but it is intended that MTD will be rolled out to these entities in the future. HMRC have not yet issued guidance on when this will happen.
Under MTD, you will need to:
- Use compatible software;
- Keep digital records;
- Submit quarterly updates; and
- Submit a final declaration.
This is a major shift in how tax is reported – and planning ahead is essential to avoid disruption.
Find out more about Making Tax Digital for Income Tax in our helpful factsheet.
How M+A Partners can help
Although HMRC acknowledges that most taxpayers meet their obligations, there is increasing pressure to tighten compliance and raise standards, especially among smaller businesses.
If you are unsure whether your current systems and processes meet HMRC’s expectations or want to get ahead of the MTD for Income Tax changes coming in 2026, please get in touch using the details below.
