£116bn black hole in the public finances, and the big reveal was… drumroll… 8,000 new tax collectors. Visionary.

I posted on LinkedIn shortly after the Spending Review in June, but now the dust has settled it’s worth spelling out the headline: HMRC left Westminster with £1.7bn in new funding, 5,500 compliance staff, 2,400 debt chasers - all geared to pull in an extra £7.5bn a year by 2029-30.

Call it reform if you like.

For anyone who didn’t endure Britain’s Next Top Deficit, the government’s fiscal review is Whitehall’s annual budget reset - a chance to reshuffle funding, announce priorities and explain how it plans to close the gap.

This year, that gap-closing exercise meant bulking up HMRC. And not at the expense of Amazon or the PE-backed multinationals with Deloitte on speed dial. You - the business owner without a tax department, just a mounting balance to settle.

Below I’m putting the political spin through the shredder, covering:

HMRC dresses it up as “closing the tax gap”. In reality, it’s plugging a hole in the public finances by leaning on the easiest group to pin down: businesses that look profitable on paper but don’t have the cash in the bank when the bill lands.

The issue here isn’t evasion, it’s timing.

Take the corporation tax example: report £200K profit and suddenly you owe £50K. On paper, that’s fine. But profit does not equal cash flow. If payments are late or cash is tied up in stock, that £50K exists only in theory.

That’s the temporal value of money: a pound is only a pound in the right time context. HMRC knows it, and that’s exactly where the squeeze is happening.

Once upon a time you could treat HMRC like Klarna, courtesy of the Time-to-Pay plan. Not anymore. These days the options are brutally simple:

That’s the catch. You can look perfectly healthy but collapse when liquidity disappears. With HMRC’s preferred creditor status, a missed payment means they're first to clear your account. Money’s gone before investors even blink. 

And it isn’t just anecdotal. Companies House has reported a surge in solvent businesses opting for liquidation during the 2024–25 tax year; a sign that even viable firms are folding under cashflow pressure.

A) Reality check: Tax doesn’t care about your working capital cycle. Ringfence it like it’s already gone, because when the bill drops, there’s no middle ground - you pay or you’re prey. That means:

Tax arrears are like bad breath - you might ignore it, but everyone else notices the second you open your mouth to pitch. One minute your narrative is solid; the next, investor confidence evaporates the moment dues show up.

The real danger isn’t the balance itself, it’s the signal it sends. Arrears read like a confession that you can’t manage cash, regardless of how strong your pipeline looks. 

And thanks to HMRC’s preferred creditor status, they’ve got first dibs on whatever’s left - meaning anyone investing behind them is instantly taking second place in the queue. That alone is enough to sink appetite.

I’ve seen deals die on this alone. Strong businesses, good terms, all the right noises - but while everyone argued the fine print, arrears quietly piled up. By the time the investor circled back, HMRC was already owed money. The business hadn’t collapsed, but the deal had - and that’s the part of the equation too many overlook (more on that below).

Even the data reflects it: according to Begbies Traynor, the number of UK businesses in “critical financial distress” jumped to 49,309 in Q2 2025, up 8.6% from the previous quarter; a sign that even solvent companies are now buckling under pressure.

B) My takeaway (albeit a bit blunt) is: walk into diligence with arrears and you’ve already failed the interview. Investors don’t care if it’s £5K or £500K - they read it as “management asleep at the wheel.” If clearing isn’t realistic, come armed with:

That shows arrears are boxed in. Without it, they’re running the show.

What do you do when HMRC’s demand lands and there isn’t enough in the account to cover it?

Most business owners I speak to aren’t tax dodgers. They’re knackered. Running on caffeine, spinning five plates at once, trying to keep suppliers sweet without bouncing payroll. They don’t have CFOs or tax lawyers - what they do have is a 64% chance of needing new capital just to make it through the next growth phase (FundOnion survey).

One entrepreneur I worked with had a £140K bill dropped on the mat. On paper he was profitable. In practice, his cash was locked up in late-paying customers. His options? Take on debt at credit-card rates or shut the doors. There wasn’t a third way.

That’s the real squeeze: not the size of the bill, but the way it strips out choice. Suddenly growth plans are binned, payroll’s on the chopping block and you’re sat in front of the board explaining why last month’s R&D claim still hasn’t cleared.

Across the SME landscape, the fallout looks the same:

I’m not the lone cynic here. LinkedIn had this take:

“Legitimate innovation funding claims are being challenged by HMRC, and smaller businesses (arguably those that need this support most) have been asked to repay funds they received. Usually they don’t have access to the legal firepower to properly defend themselves. There have also been grant competitions where applicants scored 80% or more, but only 50% of the available funding was actually awarded.”

Talk about backwards logic: SMEs make up 99% of UK businesses and more than half of national turnover, yet they’re the first port of call to mop up a £116bn overspend.

C) My advice here (and you won’t like it): 

HMRC doesn’t negotiate. It decides who gets paid and when. Either you set the sequence, or the taxman will.

So lock it in now:

Skip that prep and you’ll end up firefighting. Do it early and you at least control the order of pain - and show investors you can manage the hit.

At law school, I had to lug around a brick of a book called The Conflict of Laws. Dry as dust: endless cases on what happens when two legal systems collide.

What felt academic then is founder reality now. The real clash isn’t in courtrooms, it’s between HMRC’s legislation and the liquidity in your account. Add investors in the wings, and you’ve got three competing systems pulling you in different directions.

Customers want terms, investors want persuasion. HMRC skips the small talk and goes straight to enforcement. That’s why their bill trumps every other plan you thought you had.

Once the number lands, everything else - fundraising, hiring, even keeping the lights on - has to bend around it.

Some of this is structural, but it’s not entirely out of your hands.

Forget projections for a minute. Open the books and line up your live tax liabilities against your raise. VAT, PAYE, Corporation Tax - the unglamorous stuff. Then ask the only question that matters: if HMRC calls it in tomorrow, what’s left for payroll, creditors and growth?

That exercise is your leverage. Coming to the table with the Revenue already fed puts you in control, whereas walking in with arrears puts HMRC in control.

HMRC has the money, the mandate and now the manpower. They’re not going away. The longer you leave it, the fewer options you’ll have when the knock comes.

So treat it as an inevitability and act like the bill has already arrived. Build the buffer, clear what you can and have a plan written down. Investors don’t need blue-sky forecasts. They need the psychology of confidence; the proof that you won’t be ambushed by your own balance sheet.

Want investors putting money on the table, not excuses in your inbox? Reply and let’s line your tax position up properly.

Till next time,

James