HMRC – Investigations into SME’s increase

HMRC – Investigations into SME’s increase

HMRC recovered 23% more tax per investigation into small businesses and individuals, reaching £24,700 on average in 2024-25, up substantially from £20,100 the previous tax year.

With more than 250,000 investigations into small businesses and individuals conducted by HMRC last tax year, has resulted in the discovery of unpaid tax, either purposely or by mistake. Following decisions in these enquiries, the tax authority was able to recover a record £6.3bn in unpaid tax, which was revealed in a freedom of information request.

With SMEs perceived to be accountable for the largest share of the annual tax gap, HMRC has been under pressure to deal with the issue more effectively. The latest results show a definite improvement in recovery rates, and at the same time bring a warning for taxpayers to ensure their tax affairs are in order.

But for some the scale of the recovery is a sign that the tax rules are becoming so complicated that SMEs and individual taxpayers simply cannot keep up with the constant changes.

For example, significant changes to the way buy-to-let investments are taxed (e.g., mortgage interest) have led to confusion among amateur property investors, while increasingly multiple income streams create more problems with the rise in side hustles and gig working.

The concern is that many small businesses don’t have the capacity to deal with the level of detail and box-ticking required to submit complex tax returns, so it is no surprise they are making more mistakes!

The arrival of Making Tax Digital (MTD) for Income Tax for higher earners outside PAYE with income over £50,000 is only likely to make the situation worse, despite HMRC claims the system is easy and will make life ‘easier’ for taxpayers.