Increased HMRC Scrutiny

I want to bring to your attention some important developments that could impact your business, especially if you're a small or medium-sized enterprise (SME).

HMRC Focuses on SMEs Amid Rising Tax Gap

Recent data from HMRC reveals that SMEs now account for 60% of the UK’s £46.8 billion tax gap—the difference between what HMRC expects to collect and what is actually paid. This marks a significant increase from 48% in 2019/20, making SMEs the only sector where the tax gap is still growing.

This trend has prompted HMRC to intensify its compliance efforts. As tax experts have warned, more inquiries and investigations into SME tax affairs are expected. This includes a closer look at VAT, income tax, and corporation tax filings.

Tax gap falls slightly as a percentage of tax liabilities | ICAEW

What This Means for You

The Institute of Chartered Accountants in England and Wales (ICAEW) has echoed these concerns, noting that while the overall tax gap has slightly decreased as a percentage of liabilities (from 5.6% to 5.3%), the SME share has grown disproportionately. This suggests that HMRC may be shifting its focus more heavily toward small businesses.

In response, the government has introduced stricter penalties for late payments, particularly for VAT and income tax under Making Tax Digital (MTD). From April 2025, penalties will increase significantly, with daily interest charges kicking in after just 30 days.

Government takes further action to reduce tax debt | ICAEW

How You Can Stay Compliant

Here are a few proactive steps we recommend:

1. Submit Tax Filings Promptly
   Timely and accurate submissions—especially for VAT and MTD income tax—are essential. We’re all human, so if you think something is due, please feel free to remind us.
   Let’s also avoid last-minute submissions for financials, tax, VAT, or payroll to reduce risk and stress.

2. Maintain Detailed Records
   HMRC is likely to scrutinise documentation more closely. We request monthly bank statements to ensure all transactions are accounted for and reconciled.
   Tools like Hubdoc make it easy to send us receipts—this helps us keep your records complete and audit-ready. We’re here to work with you, and there’s plenty of technology available to make this process more efficient.

3. Review Your Tax Strategy
   We can help identify risk areas and ensure compliance. For example, if your company is in the property sector, we can advise on what might trigger an audit and how to prepare accordingly.

4. Forward HMRC Correspondence Promptly
   Delays in responding to HMRC can lead to penalties or escalated investigations. Please send us any letters, texts, or emails from HMRC as soon as you receive them so we can act quickly on your behalf.

We’re here to support you through these changes. If you have any questions or would like to schedule a compliance review, please don’t hesitate to get in touch.