Source · Select Committees · Public Accounts Committee
Recommendation 18
18
Small businesses accounted for the largest share of the tax gap in 2018–19.42 The tax...
Conclusion
Small businesses accounted for the largest share of the tax gap in 2018–19.42 The tax gap attributable to small businesses was 43% (£13.4 billion) of the total tax gap in 2018–19 and has remained fairly stable as a percentage of the total tax gap for a number of years. Furthermore, the small business population is constantly growing. HMRC told us that it had grown by about 50% in the last 20 years, and therefore the tax gap is likely to get larger.43 HMRC explained to us that this is why increasingly its strategy is to focus on helping small businesses to get their tax right and make it harder for them to get it wrong. The Department told us that a ‘one-to-one’ approach to ensuring the compliance of all 5.7 million small business is not feasible. It needs to restrict its one-to-one interactions with small businesses to cases of tax evasion, and use more ‘one-to-many’ solutions, such as campaigns targeting specific sectors, for the other aspects of the tax gap.44 We asked HMRC why it had reduced resources allocated to pursuing small businesses for taxes unpaid when small businesses make up the largest share of the tax gap. It told us that its one-to-many activities allow it to reach more businesses with fewer of its staff.45
Government Response
Not Addressed
HM Government
Not Addressed
6.1 The government agrees with the Committee’s recommendation. Re commendation Implemented 6.2 As requested, the department wrote to the Committee to this effect on 10 November 2020. The department recognises that COVID-19 is having a huge effect on small businesses, leaving a significant number in an extremely difficult position. The department committed to supporting viable businesses to cope with the impact of the pandemic, both by making it easy for them to receive key COVID-19 business support grants to which they are entitled and by administering the tax system in a way that takes account of their ability to meet their obligations to file their returns and pay their tax bills on time. The department have made general adaptations to tax administration and in addition have responded in a tailored way to individual businesses’ needs. 6.3 It remains essential that businesses comply with their tax obligations if they can, and that where a business is able to comply but fails to do so, the department takes the right action to secure the revenues that pay for essential public services and ensure a level playing field for those businesses that do meet their obligations. 6.4 In order to provide transparency and reassurance to small businesses, the department has published the approach to all of this in an HMRC issue briefing: COVID-19: how HMRC will continue to support customers and the economy.