When Rachel Reeves became Chancellor, she promised to close the UK’s “tax gap” - the difference between what should be paid in tax and what actually lands in HMRC’s bank account.
That gap still sits at around £46.8 billion - a big number that’s caught the government’s attention. To claw some of that back, HMRC is hiring thousands of new tax officers and investing heavily in data-matching tech that spots inconsistencies across tax returns, bank records, payroll, and Companies House filings.
If you run a small, owner-managed limited company, this directly affects you. Here’s what’s happening, and what you should do to stay one step ahead 👇
🚨 What’s Changing
More HMRC officers: Around 5,000 extra compliance staff are being recruited over the next few years, focused on enquiries and debt collection.
More tech: HMRC’s “Connect” system pulls in data from banks, DVLA, Companies House and even Airbnb - automatically highlighting where figures don’t match.
More small-business focus: HMRC’s own stats show small businesses make up about 60% of the total tax gap, so they’ll be a major target for enquiries.
Rising compliance activity: HMRC carried out over 300,000 compliance checks last year - and that number’s only expected to rise.
💡 What This Means for You
If you’re a director-shareholder paying yourself through a mix of salary and dividends, claiming business expenses, or running payroll for a small team - you’re on HMRC’s radar.
Most checks aren’t about suspected fraud; they’re about verifying claims and tightening compliance. But even a simple enquiry can take weeks (and plenty of your time).
Here’s where HMRC is currently focusing:
Expenses & evidence - Are the costs “wholly and exclusively” for business? Can you prove it with receipts, mileage logs, or contracts?
Director’s loans - Has the company repaid funds on time? Are any personal expenses going through the company account?
Payroll & dividends - Are payments recorded correctly and supported by paperwork?
VAT returns - Are input and output VAT consistent with sales and purchase records?
🧾 Six Simple Steps to Stay Enquiry-Ready
Keep every receipt (digitally or physically). Use cloud accounting software with receipt-capture (we recommend Xero and Dext!). HMRC accepts digital copies, so no excuses!
Separate business and personal spending. Even small “blended” purchases (like fuel or phone bills) can raise questions. Keep clear records of how much is business use.
Be proactive with your accountant. Check any unusual transactions — new equipment, cars, subcontractors, or loans — before they go in the books.
Plan ahead for HMRC contact. Have a system ready: keep a folder with returns, receipts, and correspondence so you’re not scrambling if an enquiry letter lands.
Understand the cost of a HMRC enquiry. A HMRC won't just cost you in time and sleep, it may also incur additional fees from your accountant in supporting you with the enquiry. Check your terms with your accountant and consider Tax Enquiry Cover.
Consider taking out Tax Liability Cover. You may be able to obtain insurance to cover defence costs, tax liabilities and interest and legal expenses. If you're a client of Effective Accounting - ask us for more details on our Insurance Partner.
📊 Why This Matters
HMRC’s compliance yield hit a record £48 billion last year - meaning they’re collecting more tax through enquiries and checks than ever before. And with more staff coming, this isn’t slowing down.
For small limited companies, that means:
More chance of being contacted by HMRC
Less leniency for “innocent mistakes”
More emphasis on documentation and accuracy
But the good news? With clean records and the right support, an enquiry doesn’t need to be stressful - or costly. That is where Effective Accounting comes in! So, if you're already a client, we can assure you, you are in great hands!
🤝 How We Can Help
At Effective Accounting, we work with small business owners like you to:
✅ Keep your bookkeeping and receipts HMRC-ready
✅ Review expense claims for compliance
✅ Handle HMRC enquiries from start to finish
✅ Offer optional (but highly recommended) tax enquiry cover
If you’d like peace of mind for you and your small limited company, get in touch to book a Compliance Health-Check - we’ll review your records, flag risks, and make sure you’re ready if HMRC comes calling.
Written by:
Nicola J Sorrell - Effective Accounting
Founder | Xero Champion | IR35 Expert
Share this post:
