The tax gap, the estimated difference between the amount of tax owed and collected, has long been a thorn in HM Revenue and Customs’ (HMRC’s) side.
HMRC believe that last year, a total of £46.8 billion of tax was left uncollected, which equates to just over five per cent of total theoretical tax liabilities.
SMEs are considered to be the largest contributors to the tax gap and are once again in the sights of the tax authority.
Why are SMEs being targeted by HMRC?
HMRC believes that in the 2023/24 fiscal year, Corporation Tax made up 40% of the tax gap. They also believe that small businesses made up 60% of the tax gap by customer group.
As the Government is currently trying to find the funds needed to make the June 2025 Spending Review commitments possible, the level of the potential underpaid tax has piqued its interest.
The Government therefore plans to raise an extra £7.5 billion by closing the tax gap.
To achieve this, HMRC have been awarded £1.7 billion to fund an additional 5,500 compliance and 2,400 debt management staff.
With SMEs now firmly on the radar for tax compliance, we can expect further scrutiny from HMRC in terms of enquiries and compliance checks.
