HMRC Are Cracking Down: What Small Businesses Need To Know
HMRC are cracking down harder than ever, and small businesses are firmly on their radar.
With a £47 billion tax gap, they are increasing investigations, expanding their compliance teams, and using powerful new technology to spot mistakes instantly.
This is no longer something that only affects big corporations. It affects everyone: sole traders, limited companies, directors, side hustlers, digital sellers, and anyone earning income outside of PAYE.
Here is what you need to know about HMRC’s new approach and how to protect yourself.
More Audits and Enquiries
Targeted letters, compliance checks, and follow-up reviews are becoming far more common.
HMRC are looking closely at:
Undeclared income
Overclaimed expenses
Inconsistent figures year to year
Missing information on returns
Unusual transactions that do not match your business pattern
Even small mistakes that would have slipped through before are now being flagged automatically.
HMRC Are Using AI and Advanced Technology
HMRC have invested heavily in new software that scans tax returns and financial data.
This technology can instantly detect:
Mismatched income
Transactions that look unusual
Dividend figures that don’t align with company records
VAT inconsistencies
Payroll errors
Patterns that suggest underreporting
This means you cannot rely on chance or assume HMRC will not notice. Their systems are built to spot issues quickly.
More Access to Data Than Ever
HMRC now collect information from a wide range of sources. They can access data from:
Banks
Digital payment processors
eCommerce platforms
Companies House
Land Registry
Online marketplaces
Overseas data-sharing agreements
If money has moved, there is usually a record of it somewhere. HMRC can link these data points to build a full picture of your income and spending.
Key Focus Areas Right Now
From what we are seeing across the industry, HMRC are paying close attention to:
Undeclared income, including online sales and side hustles
Overclaimed or unsupported expenses
Dividend reporting errors for limited company owners
CIS mistakes in the construction industry
VAT underpayments or incorrect use of the VAT Margin Scheme
Payroll issues such as incorrect tax codes or missed submissions
Cash-heavy industries with inconsistent reporting
Penalties are increasing, and even a careless error can lead to fines.
How To Stay On The Right Side Of HMRC
The good news is that staying compliant is very achievable if you take the right steps.
Here is what we recommend:
✔ Keep your bookkeeping up to date
✔ Maintain clear records for every transaction
✔ Store receipts digitally
✔ Review your tax position early
✔ Correct errors as soon as they are spotted
✔ Do not wait for HMRC to find a problem
Good accounting is the best protection you can have. The more accurate and organised your records are, the easier it is to avoid penalties and stay compliant.
The Bottom Line
HMRC are taking a far more proactive approach to compliance, and small businesses are now under more scrutiny than ever.
Staying organised, keeping good records, and reviewing your tax position early will give you peace of mind and keep you fully compliant.
If you want help tightening up your bookkeeping, improving your record keeping, or reviewing your tax approach before HMRC do, drop us a message. We are here to help you stay safe, compliant, and confident in your numbers.
Meet Lewis
Lewis is a professional accountant and founder of Rhombus Accounting. He regularly shares his knowledge and best advice here on his blog and on other channels such as LinkedIn.
Book a call today to learn more about what Lewis and Rhombus Accounting can do for you.
