In an era of austerity, the one thing governments always do is try to increase tax revenue. As any accountant will tell you this is usually achieved by targeting the larger multi-national business with the biggest balance sheets and broadest shoulders. However, whilst there has been much publicity regarding the tax bills of business behemoths like Google and Starbucks, little attention has been paid to SMEs: yet recent figures published by HM Revenues & Customs suggest that this particular sector may be being targeted disproportionally.
What do HMRC’s latest figures show? Well, last year alone HM Revenues & Customs recouped an extra £470 million in tax owed by UK small businesses as part of increasing probes into the tax affairs of the small business community. This figure was published as part of data obtained by UHY Hacker Young, a Top 20 group of national chartered accountants. What’s more, the group is warning SMEs to expect further scrutiny, as HMRC shifts its focus from tax investigations into larger companies to ‘softer targets’ like smaller businesses.
What’s the foundation for this claim? Well, the evidence for this claim is that in the year end 31st March 2014-15, HMRC’s tax revenues from large businesses after tax inquiries declined by 13 per cent from £4bn the previous year to £3.5bn whilst revenues form SMEs increased significantly.
What’s the reason behind the shift of focus? Why is HMRC apparently targeting SMEs? Well, according to UHY Hacker Young it’s because smaller businesses are a softer target. As SMEs have more limited budgets, they cannot usually afford to have in-house tax specialists or to pay for expert accountancy advice, and therefore they are not usually in any position to challenge tax bills they consider inaccurate or unreasonable.
Speaking about the longer-term implications of HMRC’s latest figures, Roy Maugham, tax partner at UHY Hacker Young said:
“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 HMRC 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.”
“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 added.
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