Closing the Tax Gap: Why Small Businesses Are in the Spotlight

Almost daily in the news it's being highlighted that the government has been putting more energy into closing the “tax gap” — the difference between the tax that should be collected and what actually makes its way to HMRC.

While big corporations make headlines, HMRC's focus has now shifted to small businesses. With limited resources and fewer in-house controls, small businesses are seen as higher-risk for mistakes or non-compliance.

If you run a small business, this doesn’t mean you’re doing anything wrong — but it does mean you should be proactive in minimising risk. HMRC’s attention is increasingly focused on areas where errors are common. By tightening up your record-keeping and business practices, you’ll protect yourself and keep stress to a minimum.

Here are some key areas to focus on:

1. Keep a Separate Business Bank Account

Mixing personal and business finances is one of the biggest red flags. Always use a dedicated account for your business, and avoid dipping into it for personal expenses. Not only does this keep your books clean, but it also makes preparing accounts and tax returns far simpler.

2. Maintain Proper Mileage Logs

Travel expenses are frequently checked by HMRC, and vague or estimated records can lead to disallowed claims. The good news is that there are many apps available to track mileage automatically. Choose one that suits you and make logging journeys a habit — it could save you a lot of trouble later.

3. Keep Receipts for Every Transaction

Every single expense should have a valid receipt or supporting document attached. “Cash without a receipt” won’t stand up to scrutiny, and missing paperwork is a common reason for HMRC to challenge claims. Many accounting systems now let you snap a photo of a receipt and attach it directly to the transaction, making compliance much easier. If you are VAT registered you must have a valid VAT receipt to reclaim the VAT.

4. Monitor Directors’ Loan Accounts

If you take money out of the business, always keep an eye on your directors’ loan account. An overdrawn balance can trigger extra tax charges and unwanted attention. Make it a routine to review this regularly and correct any issues quickly.

Final Thoughts

The government’s push to close the tax gap isn’t going away anytime soon, and small businesses will continue to be under the microscope. By keeping finances separate, tracking mileage properly, storing receipts, and monitoring loan accounts, you’ll not only minimise your risk of penalties but also build a stronger, more resilient business.

Staying organised isn’t just about compliance — it also gives you better visibility over your business and helps you make smarter decisions.

filling in tax forms