HM Revenue and Customs (HMRC) is set to hire 5,000 additional tax inspectors as part of a major clampdown on small businesses and their owners.
The expansion, revealed in the HMRC Customer Service & Accounts report published yesterday, aims to secure £6.5billion in additional revenue by 2029/30.
Price Bailey, a Top 30 accountancy firm, notes that this recruitment drive will result in one additional tax inspector for every 1,000 small businesses across the UK.
The move represents a significant shift in HMRC’s enforcement strategy, targeting the country’s 5.3 million small businesses.
This intensified scrutiny comes as small businesses face increases to employers’ National Insurance and the National Living Wage. The scale of HMRC’s tax enforcement operation reflects growing concerns about small business compliance.
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HMRC is hiring thousands of new officers to target tax dodgers
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According to HMRC’s June tax gap report, small businesses now account for 60 per cent of the overall tax gap, up from 44 per cent in 2018-19.
The current tax gap attributed to small businesses stands at £24.1billion. Price Bailey’s data shows HMRC’s customer compliance staff has increased by 26 per cent over the past three years, rising from 25,442 in 2021/22 to 32,017 in 2023/24.
As the firm reports, HMRC is increasingly conducting parallel investigations, examining both businesses and their directors simultaneously.
Tax inspectors are now more likely to review multiple years of accounts in a single investigation. This enhanced scrutiny comes despite HMRC’s reported struggles with tackling serious tax evasion, including electronic sales suppression in retail and directors avoiding tax debts through company wind-ups.
HMRC is looking to see where business owners are failing to pay tax
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Andrew Park, an investigations partner at Price Bailey, criticised the Government’s previous focus on offshore tax compliance.
“It was clear to anyone looking closely at the numbers that the Government’s plan to slash the tax gap by targeting wealthy individuals with offshore assets was fanciful. It was simply a politically expedient thing to say,” he states.
Park warns that HMRC will need to target ordinary business owners to achieve its goals.
“To make a serious dent in the tax gap HMRC will need to go after a vast swathe of working people on ordinary incomes,” he explains.
The shift comes as HMRC faces pressure to increase revenue amid rising Government borrowing costs.
“With Government borrowing costs rising and the Chancellor desperate to avoid more tax rises, there is growing pressure on HMRC to save the day by bringing in billions more in revenue,” Park adds.
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Britons could be targeted in HMRC’s efforts to clampdown on tax evasion
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According to Price Bailey, HMRC will be placing particular scrutiny on the costs businesses are trying to claim back as an expense from the tax authority.
“Business expenses account for a large portion of the small business tax gap,” said Park.
He reveals some striking examples of questionable expense claims: “I have seen owner-managers claiming tax relief for expensive suits, leisure travel, family birthday parties and in one case even a hovercraft.”
Small business owners are being advised to consider protection against the growing risk of investigations.
