HMRC has raised an extra £3.5 billion in the last year through investigations into underpayment of VAT by SMEs, new research has found.
The figures, obtained through a freedom of information request by tax investigation insurance firm PfP, showed that this additional revenue accounted for almost half (45 per cent) of the total amount HMRC clawed back in 2014-15 through its local compliance teams.
This represents a source of pressure on small and medium-sized firms, as HMRC looks to boost tax revenues.
Evasion or oversight?
Kevin Igoe, managing director of PfP, said: “VAT investigations represent a rich seam for HMRC and the area is coming under increasing focus as a result.
“A ‘hardcore’ of tax-evading small businesses are making life difficult for the vast majority of compliant SMEs, and leaving them facing investigations over genuine oversights and errors.”
He added that SME owners should make sure they keep their accounts up to date and are cautious when submitting information to HMRC.
Additional pressure on SMEs
The figures follow HMRC’s announcement that it is to replace 170 regional offices with special teams to undertake tax investigations. In addition, the department has invested £80 million in upgrading its computer software, Connect, which searches databases containing financial information and cross-references it with the data that individuals and businesses submit to HMRC.
Together, these measures are expected to put additional pressure on small businesses, which could be subject to penalties if they misreport their financial position – even through genuine error.
Igoe said: “The Connect database and the employment of the highly efficient taskforces are forming a pincer movement on those who either intentionally, or more likely unintentionally, report incorrectly on their VAT returns.”