We asked HMRC whether it is doing enough to tackle small businesses that operate in the hidden economy and deliberately evade their responsibilities. HMRC told us that about 8,000 of its staff concentrate on ensuring compliance in the small business sector, including those businesses active in the hidden economy. It explained that the large number of small businesses and the fast changes in the make-up of the sector compromise the effectiveness of HMRC’s one-to-one enforcement actions in deterring small businesses from non-compliance. The Department told us that, from a strategic point of view, to reduce the tax gap HMRC has to consider making more use of third-party data to enable it to identify incorrect filings, and introduce more third-party withholding, as in the case of pay-as-you-earn income tax.46