HMRC raises extra £450 million through Corporation Tax enquiries into SMEs

Publications that covered this story include City AM (Online) on 6 March and The Independent on 30 August.
  • SMEs continue to be an easy target for the Revenue

HMRC raised an additional £450 million in Corporation Tax through investigations into SMEs in the last year (2015/16*). This shows that the Revenue has continued to target small businesses in order to reduce the corporation tax gap.

SMEs are often viewed as an ‘easy target’, with many lacking the resources or in-house expertise to challenge investigations by HMRC.

Whilst SMEs have been increasingly targeted by HMRC, the amount of Corporation Tax raised from investigations into large businesses has fallen in the last year. HMRC collected £2.6 billion in extra Corporation Tax last year, down 25% from the £3.5 billion collected the year before.**

SME’s share of the Corporation Tax gap as a proportion of Corporation Tax liabilities grew from 9.2% in 2013/14 to 9.5% in 2014/15***, whilst large businesses’ share remained much lower. (see full data below)

With a high share of the Corporation Tax gap, SMEs are likely to continue to be a target for HMRC in the future.

The ‘tax gap’ is the difference between the amount of tax that should, in theory, be collected by HMRC, against what is actually collected. HMRC’s most recent estimates placed the Corporation Tax gap at £3.7 billion in total.

Roy Maugham, tax partner in London, comments: “HMRC are increasingly targeting small businesses in order to close the Corporation Tax gap.”

“However, they need to ensure that their investigations are targeted and focus on genuine abuse – those that are knowingly avoiding tax.”

“Whilst larger companies such as Google or Amazon have the resources to deal with a tax enquiry, smaller businesses could be put under significant financial stress if under investigation by HMRC.”

“The costs of a tax investigation can be high and therefore smaller businesses are much more likely to give in to HMRC’s demands than a larger business with substantial resources behind it – making SMEs a much easier target for HMRC to focus on.”

“HMRC are under pressure to recover increasing amounts of tax – and with SMEs’ share of the Corporation Tax having risen it’s likely that HMRC will continue to target smaller businesses.”

SMEs’ share of Corporation tax estimated to be owed to HMRC increased in the last year

*Year- end 31st March 2016

**Source: Pinsent Masons

*** Tax gap estimates for 2014/15, the most recent estimates available, published October 2016