HMRC Investigations Target SMEs

HMRC targets SMEsCompliance investigations by Her Majesty’s Revenue & Customs (HMRC) into Small and Medium-sized Enterprises (SMEs) have netted the tax man over £400 million in additional tax and fines.

The investigations, which have increased in number by around 39% in the last tax year 2011-2012, resulted in netting HMRC £434 million in addition to the taxes already paid by the businesses they investigated.

In the previous tax year, 2010-2011, compliance investigations netted £311 million.

HMRC’s focus on small businesses has been seen as potentially unfair with SMEs being seen as an "easy target" for the tax man.

Small firms are more likely to make innocent mistakes when calculating their tax affairs and, when compared to larger businesses who have the mechanisms in place to deal better with tax matters, SMEs are seen to offer more opportunities for investigation than their larger counterparts.

Another issue with HMRC’s compliance crackdown is the hidden cost of dealing with a tax investigation – The cost of paying for a full-time accountant to deal with or challenge a tax inspection is likely to be restrictive for many small businesses and hence they are more prone to conceding to unneccessary denabds fir additional tax.

The areas where HM Revenue & Customs are now looking include employee benefits such as private healthcare & cinpany cars plus other costs such as corporate entertainment. Previously these where areas overlooked for scrutoiny whoilst investogaotos delved into PAYE and VAT matters.

Roy Maugham of UHY Hacker Young said:

“HMRC’s take on employee benefits is increasingly draconian. They’re looking for any minor compliance slip by a business: whether it has reported the right thing at the right time, or challenging whether company cars are genuinely being used for company business at any given time.”

Small businesses should therefore take extra care on completing and submitting their tax returns as the days of the relaxed approach to fixing issues with them seem to now be gone.

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For further business advice see our article on Dealing with a VAT Inspection

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