HMRC’s latest tax gap figures put small businesses firmly in the spotlight, with the department saying they continue to account for the largest share of tax not collected.
The new official estimate says the UK tax gap for 2024 to 2025 was 6.4%, equivalent to £59.2 billion. HMRC says it collected £865.2 billion in that year, representing 93.6% of all tax due.
For small firms, the important point is not the headline total alone. HMRC says small businesses represent 62% of the tax gap by customer group, and that around half of the small business tax gap relates to Corporation Tax. Corporation Tax also accounts for 35% of the total tax gap across the system.
Why this matters for SMEs
The figures give a clear signal about where HMRC attention is likely to go next. The government has already announced measures intended to raise a further £10 billion a year by 2029 to 2030 by closing the tax gap, and the Spending Review 2025 allocated £1.7 billion over four years for extra compliance and debt management staff.
That does not mean every small business should expect an enquiry. It does mean that businesses with patchy records, weak processes or unresolved tax admin are likely to find the environment less forgiving over time.
HMRC’s behavioural breakdown is especially relevant. It says failure to take reasonable care remains the largest behavioural risk, accounting for 35% of the tax gap, followed by error at 16% and evasion at 12%. In plain English, a large part of the problem is not only deliberate wrongdoing; it is also avoidable mistakes, poor record-keeping and systems that do not catch problems early.
Corporation Tax is a practical warning sign
Many owner-managed companies treat Corporation Tax as a year-end issue, but HMRC’s numbers suggest it will remain a major compliance focus. The department says the Corporation Tax gap has increased to 18.1%, and around half of the small business tax gap is for Corporation Tax.
For directors, that makes forecasting and documentation more important. Businesses should make sure their bookkeeping is up to date before the year end, that expenses are supported by evidence, and that accounting adjustments are discussed early enough with advisers to avoid a last-minute scramble.
Small companies should also be careful where personal and business spending overlap. Director loans, use of company assets, home working costs, travel, entertaining and subscriptions can all create errors when the evidence is weak or the policy is informal.
What to check now
The immediate takeaway is to reduce preventable mistakes before HMRC has a reason to ask questions. That starts with basic controls: reconcile bank feeds regularly, keep VAT and payroll records aligned with accounting software, document unusual transactions, and review old balances that have not moved for months.
Businesses that are still preparing for digital tax changes may also want to revisit our earlier guide to Making Tax Digital for Income Tax. Even where the specific rules do not apply yet, the direction of travel is clear: HMRC wants cleaner digital records and fewer preventable reporting errors.
It is also worth checking who owns tax deadlines inside the business. In very small firms, the same person may handle sales, payroll, bookkeeping and supplier payments. That can work, but only if there is a reliable diary, a documented handover plan for holidays or illness, and enough time set aside each month to review the numbers rather than simply file returns.
The bigger picture
HMRC says the tax gap percentage has fallen from 7.5% when measurement began in 2005 to 2006, though it has fluctuated and past estimates have been revised as data and methods improve. The department also says it collected and protected a record £48 billion in compliance yield in 2024 to 2025.
For SMEs, the useful response is not panic. It is to treat tax administration as part of operational resilience. Clean records, clear evidence and timely advice are cheaper than fixing avoidable errors after the event.
Sources: HMRC press release on the 2024 to 2025 tax gap; HMRC Measuring tax gaps 2026 edition; HMRC Measuring tax gaps tables.
