Cumbrian accountancy firm Lamont Pridmore fears SMEs may soon be a prime target for HMRC after new data shows they are the biggest contributor to the UK's tax gap.

Last month, Rachel Reeve, the newly appointed chancellor of exchequer, addressed Parliament highlighting a £22 billion "black hole" in the UK's public finances.

Many fear businesses could become an easy target for tax authorities due to her pledge not to increase Income Tax and National Insurance for working people.

In the wake of the chancellor's speech, several announcements indicating the scale of tax gap contributed by SMEs raised eyebrows.

HMRC’s annual report indicates revenues being up by 3.6 per cent to £843.4 billion, while the tax gap, disappointingly, continues to grow.

During the last tax year, the difference between taxes collected by HMRC and what ideally should have been collected swelled by almost £40 billion.

Small businesses have been major contributors to this deficit, standing tall at 60 per cent of the current gap, about £23.8 billion worth.

(Image: Lamont Pridmore)

Graham Lamont, CEO of Lamont Pridmore, believes the situation could change.

He said: "Sole traders and small businesses have been some of the biggest contributors to the tax gap for some time, often due to their failure to remain compliant.

"Whilst HMRC has tried to tackle this issue in the past, with new rules and penalties they have often struggled to close the gap effectively, but this might be about to change."

Bringing change to this seemingly stagnant situation, the Treasury plans to strengthen HMRC forces by an addition of 5,000 staff and investment in IT infrastructure.

In line with Labour's pledge during the election campaign to recover £6 billion in unpaid taxes over five years, HMRC is set to receive an increase of 12 per cent on its planned 2024/25 budget of £4.7 billion.

Mr Lamont warned: "Businesses cannot rest on their laurels when it comes to tax compliance and planning as HMRC ramps up its ability to find those that aren’t paying their fair share.

"In some cases, businesses may not even be aware that they aren’t meeting their liabilities until they find themselves subject to a sudden tax enquiry."

With further £4.1 billion of lost tax revenue recently discovered by HMRC from error and fraud in the R&D tax relief scheme, Lamont Pridmore advocates for businesses to insure themselves against the costs of an HMRC enquiry via fee protection insurance.

Their hopes are to assist businesses in meeting the costs of a potential tax investigation and any ensuing tribunal.