HMRC investigations bag £565m from small firms

Wednesday 25 September 2013

Compliance investigations carried out on small and medium-sized enterprises bagged HMRC an additional £565 million in revenue last financial year, as smaller firms bore the brunt of HMRC’s recent crackdowns.

This is according to UHY Hacker Young, who obtained the figures showing that extra yield from small business tax investigations rose by 31 per cent from the previous year as the tax authority began to adopt a much tougher attitude to compliance.

UHY suggests that this is part of a trend that has been ongoing since 2010, when chancellor George Osborne set HMRC the ambitious target of drawing in an extra £7 billion every year from compliance activity. Since then around 40 separate task forces have been established by the tax authority to carry out lengthy and thorough investigations into both businesses and individuals. A total of more than £60 million has already been accrued by these specialist groups - UHY reports that one task force, targeting non-compliance in the fast food industry, has brought in £25 million on its own.

Although tax avoidance and evasion have been at the heart of the taxman’s efforts, UHY says that HMRC is trying hard to get everything it can from companies.

“Small businesses are bearing the brunt of HMRC’s tougher approach to tax investigations,” says Roy Maugham, UHY tax partner in London. “With an ambitious target set by Chancellor to bring in billions of pounds through additional compliance, HMRC is desperate to squeeze as much money as they can from businesses who may owe tax.”

Mr Maugham explains that although a media frenzy has grown up around major firms mitigating their tax liability through practices such as profit-shifting, less attentions has been paid to HMRC’s work on smaller businesses. As an example, he mentioned the task force set up in July to deal with the South Wales tourism industry, which is expected to raise around £2.5 million. UHY’s office in the area has seen the effects as companies have sought advice.

New powers were recently granted to HMRC to ensure that it can access credit and debit card payments made by every business in the UK as part of a move to root out traders who are not disclosing all of their income. It has also taken to naming and shaming individuals and businesses in cases where tax has not been paid.

Because they lack the resources enjoyed by bigger companies, Mr Maugham says, small firms are more likely to make mistakes in their reporting and accounting practices. Many cannot hire specialists to look after their financial affairs, meaning the chances of errors in tax returns and other paperwork are higher. For the same reasons, they also have less room for manoeuvre in negotiation with the taxman if they are accused of underpayment. When it comes to the UK’s smallest businesses, such as contractors running their own limited companies, the message is to be prepared.

“It is important for SMEs to be aware of the risks they face if their tax affairs are not in order, because SMEs are increasingly on HMRC’s radar – as the ever-growing yield from these investigations proves,” Mr Maugham adds.

By Victoria McDonnell

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