Something has quietly shifted in how HMRC identifies non-compliance. The old model, broad campaigns and reactive investigations, is being replaced by something far more precise. And small businesses are at the centre of it.
The numbers explain why.
The Tax Gap That Triggered All of This
In June 2026, HMRC published its latest tax gap figures. The gap between what was owed and what was actually paid in 2024 to 2025 came in at £59.2 billion. That is 6.4% of all tax due, up from £52.8 billion the year before.
Small businesses account for 62% of that figure. Not large corporations. Not wealthy individuals. Small businesses.
Corporation Tax tells the sharpest part of the story. The small business corporation tax gap has risen to 18.1% by value. KPMG’s analysis of HMRC’s own data found that 55% of small businesses filed incorrect corporation tax returns with an under-declared liability in 2022 to 2023.
Most of it is not deliberate fraud. HMRC identifies two main drivers: under-reported income, overclaimed expenses, and errors in transactions between a company and its directors. That last one, the director loan account, is now a specific focus area.
A Record Compliance Operation Already Running
Before getting into what is changing, here is what HMRC is already doing.
In 2024 to 2025, HMRC collected and protected a record £48 billion in compliance yield. That is money which, in HMRC’s own words, would have gone unpaid without their intervention. It is up 15% from the previous year.
The target for 2025 to 2026 is £50.4 billion.
This is not a department pulling back. It is one scaling up at pace.
5,500 New Compliance Officers and Counting
At Autumn Budget 2024, the government committed £1.7 billion over four years to fund 5,500 additional compliance staff and 2,400 debt management officers by 2029 to 2030.
Over 2,100 have already been hired. More than 1,600 joined in 2025 to 2026 alone. A further 1,100 are planned for 2026 to 2027.
These are not generic administrators. They are compliance caseworkers, analysts, and lawyers, specifically recruited to investigate non-compliance. For small businesses, that means the chance of a compliance check landing on your desk is materially higher than it was three years ago.
The System Watching Before Anyone Picks Up the Phone
The human hiring matters, but the bigger shift is what those compliance officers are working with.
HMRC’s Connect system cross-references every tax return against more than 30 data sources. Bank interest reports. Employer payroll. Land Registry ownership records. Council tax data. Digital platform sales. Overseas account balances. The moment a return is submitted, Connect runs it through a battery of consistency checks and assigns a risk score. High-scoring returns go to human review. Low-scoring ones do not.
Connect has more than paid for itself. It was credited with £3 billion in additional tax collected by 2020, and its use has expanded steadily since.
In December 2025, HMRC went further. It awarded 12-month pilot contracts to two private sector firms, BAE Digital Intelligence and Coefficient Systems, to develop and test new AI approaches specifically targeting deliberate evasion and improving compliance case selection. These are no longer internal experiments.
What the Platforms Are Now Telling HMRC
Digital Platform Reporting came into force across the UK from January 2024. Under this regime, online marketplaces, including eBay, Etsy, Airbnb, Vinted, and Just Eat, are now required to report seller income directly to HMRC.
Connect takes that data and matches it against what sellers have declared. If you are running a side business through any of these platforms and your tax return does not reflect it, the mismatch is flagged automatically.
This is not a future risk. It is happening now.
Banks and Card Processors Are Next
Under Schedule 23 of the Finance Act 2026, HMRC is moving to require banks, building societies, and merchant acquirers to report interest income and card sales data on a recurring basis. A technical consultation on the detail closed in August 2026.
The intent is explicit: improve HMRC’s ability to match third-party data to taxpayer records, and trigger digital prompts where declared income does not align. For any small business taking card payments, this creates a direct data link between your terminal and HMRC’s systems.
Making Tax Digital as a Compliance Tool
MTD is discussed as a taxpayer convenience. It is also a compliance mechanism.
Making Tax Digital for Income Tax gives HMRC quarterly visibility of income and expenses across hundreds of thousands of sole traders and landlords. That data feeds into Connect. Anomalies across quarters, or between MTD data and third-party sources, become compliance triggers.
From April 2027 the threshold drops to £30,000. From April 2028 it falls to £20,000. By the end of that rollout, close to 4.2 million businesses will be reporting to HMRC four times a year. The volume of matchable data HMRC holds on small businesses will be transformational.
What This Means for Your Business Right Now
None of this means every small business is under investigation. Most are not. What it does mean is that the conditions which previously allowed errors to go unnoticed for years are disappearing.
A discrepancy between your declared income and what a bank, platform, or employer has reported no longer requires a tip-off or a random check to surface. Connect finds it automatically.
The practical response is straightforward but requires consistency. Accurate bookkeeping throughout the year, not just in January. Corporation tax reviewed before filing, not after. Director loan accounts cleared or properly documented before year-end. Past errors corrected proactively rather than left to surface.
If you are not certain your records would hold up to a targeted compliance check, that is the question worth answering now, before HMRC asks it first.
Lanop’s chartered accountants work with small businesses to keep records accurate, identify risks early, and respond to HMRC compliance activity with confidence. Get in touch today for a straightforward conversation about where your business stands.
