HMRC collected £470m through investigations into SMEs because they are seen as a “soft target”, an accountancy group has revealed.
Research from UHY Hacker Young found that investigations into the business affairs of small and medium-sized firms resulted in an additional £470m for HMRC in 2014-2015.
This is because small businesses are seen as an easy target for tax investigators, as they don’t have the resources or expertise to challenge tax bills that they think are incorrect or unfair.
But HMRC’s income from investigations into large companies fell by 13 per cent, from £4bn in 2013-2014 to £3.5bn in 2014-2015.
A tough approach
Roy Maugham, tax partner at UHY Hacker Young, said: “Small businesses have already felt the effects of the tax man’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 tax man will lead to substantial costs and protracted disruption.”
Cost of bad admin
UHY Hacker Young also highlighted HMRC’s own research, showing that when SMEs pay their tax bills late, it is usually because of poor administration, cash flow problems, and late payment of debt. The administrative burden on SMEs looks set to increase with the closure of 170 local tax offices.
Maugham added: “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.”
He warned that although the Taxman is sometimes accommodating of requests to extend payment deadlines, the new tax system will mean that small discrepancies will be far more likely to trigger an investigation – putting SMEs at risk.
“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 [from] the taskforces – and the prospect of an undoubtedly unwelcome fine.”