HMRC recovered £6.3 billion from 255,000 tax investigations into individuals and small businesses in 2024/25, with the average yield per investigation rising 23% to £24,700 – up from £20,100 the previous year. New data obtained by our UHY network colleagues through a Freedom of Information request reveals a trend that every small business owner in the North West should be aware of.
The increase isn’t primarily driven by deliberate evasion. The more significant factor is complexity. Tax rules for small businesses have become increasingly detailed and time-consuming to navigate, and many businesses simply don’t have the internal capacity to manage them without making errors.
The Corporation Tax CT600 form alone — used by small companies to disclose their tax liability to HMRC – contains more than 200 boxes that may need to be completed, alongside up to 12 supplementary forms. For a business owner focused on running their company day to day, that level of administrative demand is considerable.
Small businesses spend an average of £4,500 a year and around 44 hours of management time on tax compliance, according to the Federation of Small Businesses. Scaled across the UK, that amounts to 242 million hours annually – a significant drag on productivity that falls disproportionately on smaller firms.
The pressure is particularly acute around VAT. Quarterly payment obligations mean that a strong month of sales at the end of a quarter can generate a large VAT bill that falls due before the revenue has been fully collected. That kind of cash flow mismatch creates real risk.
Buy-to-let landlords are also in the spotlight
Significant changes to the way buy-to-let investments are taxed – particularly around mortgage interest relief – have caused widespread confusion among property investors who manage their portfolios without professional support. HMRC investigations into this group have increased as a result.
What to do if HMRC opens an investigation
If your business receives a penalty from HMRC, don’t assume it’s correct. Businesses have the right to challenge penalties, and in many cases there are valid technical grounds to do so – particularly in areas where the rules are genuinely ambiguous, such as the treatment of business expenses versus personal use, or the distinction between repairs and capital improvements.
Any challenge must be made on technical grounds, focused on how the relevant rules should be properly interpreted.
If you can’t pay, act early
Where a tax bill or penalty cannot be met in full, a Time to Pay arrangement with HMRC is almost always preferable to doing nothing. Without one, penalties can accumulate quickly and may ultimately force a business to sell assets to meet the liability.
At UHY Williamson Croft, we work with businesses across Manchester, Liverpool and the wider North West on tax compliance, HMRC enquiries and dispute resolution. If you’ve received a compliance check or penalty notice – or simply want to make sure your tax position is as robust as it should be – get in touch with our team.
Data sourced from HMRC via FOI request, covering the tax year 2024/25. Small business compliance cost data from the Federation of Small Businesses.
This article was originally published here and is reproduced with kind permission from the UHY Hacker Young network.