News

September 24, 2010

HMRC to crack down on business tax evasion

Small-business owners need to prepare for an increase in tax inspections as HM Revenue & Customs (HMRC) is cracking down on tax evasion and avoidance, the Association of Chartered Certified Accountants (ACCA) has warned.

HM Treasury chief secretary, Danny Alexander, has announced that the Government is making £900 million available over the spending review period to tackle individuals, including business owners, who avoid or evade tax. It is thought that the measures are designed to help fill the £158 billion hole in public finances.

Tax avoidance is a legitimate means for businesses to use the system to their advantage, reducing the amount of tax they owe by means that are within the law. However, tax evasion is the general term for illegal efforts not to pay tax.

ACCA technical officer, Jason Piper, said that although most small businesses would not deliberately deceive HMRC, they should be on their guard in case they are wrongly suspected.

"There has been some money provided for HMRC to crack down on tax evasion," said Piper. "Unfortunately a lot of inspectors don’t have as good an understanding of how small-business owners operate as they used to. Small firms are more likely to be targeted for tax evasion – misrepresenting their records – rather than tax avoidance, which is exploiting loopholes in the law.

"If firms get a letter from HMRC they should talk to a specialist, such as an accountant or a qualified tax adviser," he added. "The crackdown will be a document-based enquiry on the back of businesses’ previous tax returns. But unless they think there is evidence of serious wrongdoing, HMRC are not going to turn up on the doorstep with a warrant."

He added that firms should ensure their records are up to date to avoid being wrongly suspected. "They should keep clear and complete records to enable them to prove where their money’s come from, where it’s gone and what they’ve done with it," he said. "It can be very difficult to prove the difference between poor record-keeping and tax evasion."

However, an HMRC spokesman said that small businesses won’t be targeted by tax inspectors if they are not deliberately dodging tax. "The majority of businesses are compliant with tax affairs, but there are always incidents where people try to get away with paying less tax," he said.

"There is tax relief that firms use legitimately, but they will only fall foul of the regulations if they try to set up a scheme where they send their income into an offshore bank account, or don’t put all their sales through their books," he added. "Firms must keep good records to ensure they can prove their compliance."