April 01, 2016
HMRC earned an additional £470m from investigations carried out into the tax affairs of small businesses last year as it comes under increased pressure to boost income from tax investigations.
These findings come from data obtained and analysed by UHY Hacker Young. Now the accountancy group is warning that SMEs could come under even greater scrutiny as the Revenue looks to raise the tax take further by shifting its focus from larger businesses to smaller firms.
It says that the tax take from investigations into large businesses fell by 13% last year, from £4bn to £3.5bn.
According to UHY Hacker Young, SMEs can be a "soft target" for HMRC because, it says, "budgetary constraints mean small businesses do not tend to have tax specialists in-house, making it harder for them to challenge tax bills that they see as unfair or inaccurate".
Roy Maugham, tax partner at UHY Hacker Young, said: "Small businesses have already felt the effects of the taxman's tougher approach to compliance, and the target to bring in billions more may lead to HRMC squeezing every pound it can from SMEs."
He added: "As well as being more likely for SMEs to make a mistake when it comes to their taxes, they are also less likely to effectively negotiate if they disagree with HMRC's demands as they will feel out of their depth and fear arguing with the taxman will lead to substantial costs and protracted disruption."
Now HMRC is putting in place a wider range of specialist taskforces. "HMRC is on a drive to increase tax-take," said Maugham. "Its methods have changed in order to achieve this - it now focuses on specific subsectors, and even on specific issues like corporate entertainment."
According to UHY Hacker Young, recent research by HMRC has found that late payment of tax by SMEs is most often caused by poor administration, cash flow problems and poor coping strategies whereby debts are not paid until they have been chased several times.
"The Revenue can, on occasion, be understanding and accommodate requests for extensions to tax payment deadlines for example," said Maugham. "Under the new system, however, small discrepancies will be far more likely to trigger an investigation. SMEs are highly advised to try and get their books in order and make payments within the requested time period."