Small businesses accounted for nearly two-thirds of the UK's £59.2bn tax shortfall last year, according to the latest figures from HM Revenue & Customs (HMRC).
In the 2024 - 25 tax year, HMRC collected £865.2bn in tax revenue, representing 93.6% of all tax due. This left a tax gap of 6.4%, the difference between the amount of tax expected to be paid and the amount actually collected.
The latest shortfall marks an increase from the previous year's revised figure of £52.8bn, when the tax gap stood at 6%.
HMRC estimates that non-compliance by small businesses accounted for 62% of the 2024 - 25 tax gap, making them the largest single contributor across all taxpayer groups.
Unpaid corporation tax was the biggest contributor to non-compliance. The corporation tax gap, which relates to tax paid on business profits, investments, and asset sales, rose to 18.1% in the latest year.
According to HMRC, tax evasion was responsible for 12% of last year's tax gap. However, the biggest behavioural causes of unpaid tax were failure to take reasonable care, carelessness, negligence, and simple errors.
For small business owners, staying tax compliant is essential. Here are some steps to help keep your business on track.
Understand tax changes and updates
Tax rates, thresholds, and allowances can change regularly. Keeping up to date with government announcements and HMRC guidance will help ensure your business remains compliant and avoids unexpected liabilities.
Keep accurate financial records
Maintaining accurate and up-to-date financial records is one of the most effective ways to stay compliant.
Cloud accounting platforms such as Xero, QuickBooks and Sage can streamline record-keeping and often integrate directly with HMRC systems, making it easier to manage tax obligations and reduce the risk of errors.
Manage cash flow effectively
Good cash flow management is essential for meeting tax obligations throughout the year.
Consider setting aside funds in dedicated accounts for VAT, PAYE and self-assessment liabilities. This can help avoid cash shortages and last-minute scrambles when payment deadlines arrive.
Check your HMRC business account regularly
Make it a habit to log into your HMRC business tax account regularly to:
- check filing requirements
- submit returns
- review correspondence
- set up paperless notifications
Regular monitoring can help you stay ahead of important updates and deadlines.
Stay on top of key tax deadlines
Missing deadlines can result in penalties, interest charges, and unnecessary costs.
Important dates to remember include:
- 6 April – start of the new tax year
- 31 July – deadline for the second payment on account (where applicable)
- 31 January – deadline for self-assessment tax returns and final balancing payments
Prepare for Making Tax Digital (MTD)
Making Tax Digital is transforming how businesses interact with HMRC by requiring digital record-keeping and online submissions.
As MTD requirements continue to expand, smaller businesses and sole traders should ensure they are prepared.
Key actions include:
- checking whether your business falls within MTD requirements based on turnover and other criteria
- using HMRC-approved, MTD-compatible accounting software
- training employees to use digital systems correctly to minimise errors and delays
Work with an accountant
Tax legislation can be complex, and professional advice can save both time and money.
A qualified accountant can help ensure your business remains compliant, stays informed about important tax changes, and takes advantage of legitimate tax-saving opportunities, such as capital allowances and employment allowances.
With HMRC continuing to focus on reducing the tax gap, maintaining accurate records, meeting deadlines, and seeking professional support where needed can help small businesses avoid costly mistakes and stay firmly on the right side of the tax rules.
