HMRC raises extra £489 million through Corporation Tax enquiries into SMEs

This publication was covered in City AM, 11 April 2016.
  • ‘Soft-target’ SMEs burdened with growing Corporation Tax bills

HMRC raised an additional £489 million in Corporation Tax through investigations into SMEs last year (2014/15) according to our research.

The additional yield shows that HMRC is strengthening its investigations into small businesses, with them being viewed as ‘soft targets’ in HMRC’s drive to reduce the Corporation Tax gap.

The ‘tax gap’ is the difference between the amount of tax that should, in theory, be collected by HMRC, against what is actually collected. HMRC’s most recent estimates (covering 2013/14) placed the Corporation Tax gap at £3 billion*.

SMEs’ share of the Corporation Tax gap as a proportion of Corporation Tax liabilities shrank from £2.1 billion (11%) in 2012/13 to £1.4 billion (7%) in 2013/14– whilst tellingly – the same gap for ‘Large Business Service’ stayed at £1 billion (5%) across the same years (see full data below).

Roy Maugham, partner said: “HMRC appears to be aggressively going after small businesses as ‘easy pickings’ and it’s possible they will look to accelerate investigations next year and beyond to further close the gap, rather than going after big enterprise.”

“The substantial closing of the tax gap for SMEs and non-movement by bigger companies is a clear demonstration of the increased pressure by HMRC on SME to fill the shortfall.”

Corporation Tax gap as a % of Corporation Tax liabilities

  2012/13 2013/14 Change
SME 11%

(£2.1 billion)


(£1.4 billion)

Large and Complex Unit 9%

(£0.6 billion)


(£0.6 billion)

Large Business Service 5%

(£1 billion)


(£1 billion)

Roy continued: “Whilst small businesses are being increasingly pursued, large companies such as Facebook, Amazon and Starbucks are seen to be ‘getting away with’ paying disproportionally small amounts of Corporation Tax.”

“Understandably, the public is increasingly frustrated about large companies failing to pay their fair share of Corporation Tax, whilst SMEs feel they are shouldering much of the tax burden by repeatedly coming under fire from HMRC.”

Corporation Tax enquiries disproportionally impacting SMEs

Small business leaders believe that Corporation Tax enquiries often impact their companies’ profits harder than big business as a much larger proportion of their resources have to be devoted to dealing with tax probes.

Roy continued: “SMEs simply don’t have the deep pockets of the likes of Google or Starbucks, and often have to take time out of managing their businesses to respond effectively to HMRC.”

“The unexpected nature of the enquiries means that large, unforeseen tax bills can also have greater impact on the short-term cash flows of small businesses – which can be damaging for expansion and growth plans.”

*Tax gap estimates for 2013/14, the most recent estimates available, published October 2015.