The Tax Gap - What this means for small business'

May 21, 2025

HMRC Are Stepping Up – What This Means for Small Businesses and How to Stay Compliant

In 2022/23, HMRC missed out on nearly £40 billion in unpaid tax. This is what they call the “tax gap” — the difference between what they expect to collect and what they actually receive. A huge chunk of that — over £24 billion — came from small businesses.

So, it’s no surprise that HMRC is stepping up its game.

Why is HMRC taking action?

The National Audit Office (NAO) has told HMRC to do more to close the tax gap. In simple terms, this means chasing down errors, unpaid tax, and fraud more seriously than ever before.

Instead of just waiting to do a full tax enquiry, HMRC is now using “nudge letters”, smarter data tools, and automated checks to spot problems quickly — and often, before you even know you’re on their radar.

With over 50 billion lines of data in their system, HMRC now has more eyes on small businesses than ever before. They’re looking at banking data, digital records, and past tax returns to see if anything looks unusual.

And with an extra 5,000 staff being recruited and £100+ million in new funding, it’s clear this isn’t slowing down anytime soon.

What this means for small business owners

If you’re a sole trader or run a limited company, you could be at greater risk of being contacted by HMRC — especially if your records aren’t accurate or up to date.

Here are a few common reasons small businesses fall into trouble:

  • Not keeping proper records of income and expenses

  • Claiming the wrong expenses or missing allowable ones

  • Confusion over VAT, CIS or payroll

  • Missing tax deadlines or filing incorrect returns

And it’s not just deliberate fraud that HMRC is looking at — genuine mistakes are also being picked up. That’s why now is the time to make sure your accounts are in order.

How Kernow Accountancy can help

At Kernow Accountancy, we’re here to make sure your business is:
✔️ Tax efficient – so you’re not paying more than you need to
✔️ Compliant – so you’re not getting letters from HMRC
✔️ Organised – with the right records and support in place

We’ll work with you to:

  • Understand what tax you need to pay (and when)

  • Set up your bookkeeping so it’s simple and stress-free

  • Help you claim the right expenses

  • Keep your accounts up to date

  • Deal with HMRC if they do come calling

Whether you’re just starting out or already established, we make it easy to stay on track — without the headaches.

📞 Worried about your tax or unsure if you’re doing things right?
Get in touch today — we’ll help you sort it, simply.