HMRC tightening screws on small businesses brings in £470m in extra tax last year

This publication was covered in Accountancy, Tax news and The Daily Telegrpah on 29 March 2016.
  • Introduction of specialist taskforces to see scrutiny increase further still

According to our research, 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.

SMEs could come under even greater scrutiny as the Revenue looks to raise tax take further still by shifting its focus from investigations into larger businesses – to smaller businesses.

Tax take from investigations into large businesses fell by 13% last year, from £4bn to £3.5bn** SMEs can be a soft target for HMRC because budgetary constraints mean small businesses do not tend to have tax specialists in-house, making it harder for them to challenge tax bills presented to them by HMRC that they see as unfair or inaccurate.

Roy Maugham, tax partner states: “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.”

“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.”

As part of its drive to improve its compliance take from small business, HMRC is putting in place a wider range of specialist taskforces, designed to build-on and upgrade the operations of HMRC’s regional offices – 170 of which face closure.

By concentrating resources on a particular sector, taskforces will aim to quickly and efficiently identify, investigate and enforce unpaid tax collection by SMEs. Specialist task forces could see smaller businesses face even greater administrative burdens – while those coming under investigation could see their day-to-day operations disrupted even further than before.

Roy Maugham, says: “HMRC is on a drive to increase tax-take. Its methods have changed in order to achieve this – it now focuses on specific subsectors, and even on specific issues like corporate entertainment.”

HMRC has recently carried out research into the tax behaviours of small businesses, confirming these as healthy sources of additional tax take. It found that late payment of tax by SMEs is most often induced by:

  • poor administration;
  • cash flow problems; and
  • general coping strategies whereby debts are not paid until they have been chased several times.

Roy Maugham, says: “The Revenue can, on occasion, be understanding and accommodate requests for extensions to tax payment deadlines for example. 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 in order to avoid a visit for the taskforces – and the prospect of a undoubtedly unwelcome fine.”

* Yield from compliance investigations into self-assessed business taxes by HMRC local teams for the year ending March 31 2015
 ** 2014-15, year end March 31