Small businesses targeted to bring in extra revenue
£468m in extra tax was brought in from investigations into the tax affairs of small and mid-sized businesses last year*, says UHY Hacker Young, the national accountancy group.
UHY Hacker Young explains that because tax investigations into large businesses may be becoming less profitable, HMRC has shifted some of its focus to investigating small and mid-sized businesses, as it faces increased pressure from the Exchequer to boost tax take.
UHY Hacker Young suggests that this is partly because large businesses are often better resourced and able to employ in-house tax specialists, who can close down or limit HMRC's investigations when its approach gets unnecessarily aggressive. Smaller businesses are often unable to do the same, and may therefore prove to be a more profitable target for HMRC.
UHY Hacker Young adds that, on the other hand, small and mid-sized businesses could be affected by time and budgetary constraints, or a lack of financial experience when it comes to self-assessing their tax affairs, which could make them more prone to errors.
As part of its push to bring in more tax from small and mid-sized businesses, HMRC has introduced two new directorates: 1) Wealthy and Mid-Sized Business Compliance and 2) Individuals & Small Business Compliance**. These business units are responsible for clamping down on non-compliance by small and medium sized businesses.
UHY Hacker Young adds that the unit responsible for clamping down on non-compliance by small and mid-sized businesses last year brought in £470m of extra tax***.
Roy Maugham, Tax Partner at UHY Hacker Young, says:
"HMRC have been visibly gearing up for a crackdown on small and mid-sized businesses, and now their tax affairs are coming under greater scrutiny."
"HMRC are showing signs of beginning to exhaust yields from investigations into large businesses. Many small and mid-sized companies may not have been at the top of HMRC's agenda in the past, but are now coming under the spotlight."
"There is increasing pressure on small and mid-sized businesses to spend their time and money on systems to ensure that tax affairs are accurate and up to date. Without adequate care, small businesses are at risk of being pulled up over minor mistakes or small disparities, which could incur disproportionately heavy fines and penalties."
"HMRC has been awarded a host of new powers and invested heavily in technology to clamp down on non-compliance. They need to ensure that they use new controls in a sensible way – so as not to damage those small and mid-sized businesses who have just been careless and confused."
*Yield from compliance investigations into self-assessed business taxes by HMRC local teams for the year ending March 31 2016
**HMRC's local compliance unit, responsible for scrutinising the tax affairs of small and mid-sized businesses, was split into 1) Wealthy and Mid-Sized Business Compliance (WMBC) and 2) Individuals & Small Business Compliance (ISBC) last year
***Year end March 31 2015