In June 2025, HM Revenue & Customs (HMRC) revealed a plan to recover an additional £7.5 billion per year by 2029–30 as part of a broader effort to close the UK tax gap. This initiative is central to the government’s Spending Review 2025, which provides funding to boost HMRC’s compliance capacity. With a widening tax gap—5.3% of due tax in 2023–24, equivalent to £47 billion—UK businesses must understand how this crackdown could affect them.
What Is the Tax Gap?
The ‘tax gap’ represents the difference between tax due and tax paid. In 2023–24, HMRC collected £829.2 billion—94.7% of what was owed. About 60% of the unpaid tax, equivalent to £28 billion, came from small businesses, with corporate taxes accounting for around 40% of the gap.
How Is HMRC Funding the Crackdown?
- Headcount expansion: An extra 5,500 compliance officers and 2,400 debt management staff will be employed.
- Digital tools: Investment in HMRC’s digital capabilities, including AI-based data mining and the ‘Connect’ system, is estimated at £500 million by 2029.
- Efficiency savings: Consultancy budgets are being cut heavily to fund these internal measures.
What This Means for Businesses
- Increased Compliance Checks: Expect more random and targeted enquiries, especially among small businesses.
- Higher Penalties: HMRC’s tone suggests stricter enforcement, so inaccurate filings—even unintentional—may trigger higher penalties.
- Digital Reporting Obligations: Firms should move to digital tax submissions now to avoid triggering avoidable flags.
- Support for SMEs: HMRC emphasises a “digital-first” approach, meaning easier self-serve channels but also fewer excuses for errors.
Practical Steps for UK Businesses
- Upgrade systems: Make sure accounting software is MTD-compatible and stays updated.
- Conduct internal compliance reviews: Spot-check VAT, PAYE, corporation tax filings for accuracy.
- Invest in training: Ensure your finance team understands digital tools, data accuracy, and record-keeping standards.
- Seek tax advice: Professional guidance can identify areas of weak compliance before HMRC does.
Conclusion
The government’s funding for HMRC under the Spending Review signals a generational rise in tax enforcement intent. Businesses that proactively strengthen their compliance systems will be better positioned to minimise disruption – even thrive – as the regulatory environment changes.