In June 2025, HMRC published new figures on the UK’s tax gap, which show that self employed people are a key part of the story.
If you submit a Self Assessment tax return, this data isn’t just background noise.
It affects the chances of HMRC checking your return, the level of support you’ll receive in future, and what’s likely to change as Making Tax Digital (MTD) rolls out.
What Is the Tax Gap?
The tax gap refers to the difference between the amount of tax HMRC theoretically expects to collect and what it actually receives in reality.
According to HMRC’s just-published “Measuring Tax Gaps 2025” report:
The total UK tax gap for 2022–23 is estimated at £39.8 billion, or 4.8% of the total tax due.
It covers all taxes, including Income Tax, VAT, Corporation Tax, National Insurance, and others. However, one area stands out for small businesses and sole traders: Self Assessment.
Self Assessment and the Tax Gap
HMRC says that it has improved how it measures under-payments and non-payments by people who submit Self Assessment returns, including the self-employed and landlords.
This latest report provides more accurate estimates of:
- Under-reported income
- Mistakes and incorrect claims
- Unpaid tax debts
What are the top causes of lost tax according to HMRC?
- Failure to take reasonable care – 31%
- Error – 15%
- Evasion – 14%
- Non-payment – 12%
These figures highlight that most of the problem stems from avoidable errors, rather than deliberate fraud.
Why does this affect the self employed directly?
The tax-gap figures aren’t just an academic exercise – the findings influence how HMRC behaves.
The sizeable tax gap is likely to result in:
1. More scrutiny of sole traders’ tax returns
Self-employed people who often or consistently make errors may be targeted for review. HMRC has a “random enquiry” programme but will also use risk-based flags to zoom in on higher-risk filings.
2. More digital compliance tools
Expect more nudges, reminders and “pre-filling” of your returns – especially if you’re using MTD-compatible software. This is designed to catch errors before you submit, and is a useful feature!
3. Greater use of AI and data-matching
HMRC is investing in better technology to cross-reference business activity with returns. For example, a mismatch between your banking activity and declared business turnover may trigger further enquiries.
How to stay on the right side of HMRC
The latest data reassuringly confirms what we already know: most self-employed tax issues are unintentional.
So, what can you do to make sure your tax returns are accurate and minimise the chance of making mistakes?
1. Keep detailed records all year round
Use bookkeeping software like FreeAgent or Xero to log:
- Business income
- Allowable expenses
- VAT (if registered)
- Mileage, subscriptions, and home-office claims
This is a non-brainer if you’re running a small business. Most software is reasonably priced, and you can usually get a 30-day free trial before you commit. See the links at the bottom of the page for discounts for ByteStart readers.
2. Review your tax return carefully before pressing ‘go’
Don’t rush the process, as it’s so easy to make a mistake. Double-check the basics:
- How did you include all sources of income, in addition to your income from self-employment?
- Have you claimed the right amount of expenses?
3. Understand what “reasonable care” means
HMRC expects you to take care – this includes reading the guidance or getting help if you’re unsure. Ignorance isn’t a defence if you make repeated mistakes.
4. Use an accountant
A good accountant can spot common errors and save you more than they cost, especially if your business income is rising or you have multiple income streams.
5. Learn the basics of Making Tax Digital
Though not mandatory for most sole traders until April 2026, MTD is coming.
If you start using MTD-ready software now, it will:
- Make record-keeping easier
- Help you stay compliant
- Reduce error risk — see HMRC’s guidance on digital record-keeping.
Read our guide to MTD for the self employed for some useful advice.
What’s changing in 2025 and beyond?
- MTD for Income Tax: Delayed to 2026 for most, but early adoption can reduce your compliance risk.
- Targeted compliance checks: Expect more use of data analytics to identify possible mistakes in real time.
- Public messaging: HMRC will continue promoting tax awareness and support services, but will penalise repeated carelessness more strictly.
FAQs
What does “failure to take reasonable care” mean?
It’s when you make a mistake you could have avoided, like guessing your expenses or forgetting to report income. You don’t have to be a tax expert, but you’re expected to take your filing seriously.
Is HMRC going to check more tax returns?
Yes, especially where trends suggest underreporting is common. HMRC often runs targeted campaigns at certain sectors (including trades, crypto, influencers, or Airbnb hosts). Many online platforms must now report income from side-hustles, so make sure your numbers are correct.
Can I fix a mistake after I’ve submitted my return?
Yes – log in to your HMRC online account and amend the return within 12 months of the deadline. If in doubt, speak to an accountant or contact HMRC directly.