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Scary stories

26th Oct 2012
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What passes for news in the financial sector is not always what it seems. Financial journalists, even more than many others, are inclined to pick up someone’s press release and pop it undigested into the paper.

So an excited press release from chartered accountants UHY Hacker Young tells us (based on HMRC figures obtained through a freedom of information request, which makes it more exciting) that the yield from HMRC enquiries into small businesses rose by 39% in 2011/12, from £311m to £434m.

This was followed with all due solemnity by the FT and the Independent. We might bear in mind that such an increase is not necessarily a bad thing if it collects tax that should have been paid in the first place, and that it is being howled on by the government to collect more tax.

Before we get too excited by this, let’s look at the context. We are not talking about what I would call small business here, we are talking about SMEs. That means by European standards (which is what is being used) businesses with up to 250 employees and €50m of turnover. That does not worry UHY, who say blithely small businesses are more likely to make innocent errors in their tax calculations than larger businesses, meaning the small business community offers plenty of opportunity for HMRC. The first thing that might be said here is that these figures would include the correction of innocent errors, and – as long as they are accepted as that – it is surely right that innocent errors should be corrected. And the businesses at the larger end of this can surely afford proper advice.

They then suggest that SMEs cannot afford a “full time accountant” to challenge an HMRC investigation. I am not sure what they mean by a “full time accountant” but it would be a remarkable HMRC enquiry that needed someone to work full time to respond to it. If they mean that a specialist is needed, then sure, but I know investigation specialists operating within the pricing parameters of quite small businesses who are perfectly capable of challenging HMRC.

They go on to say that HMRC is looking more closely at issues like corporate entertainment and employee benefits. These are not small business issues, because in the rare case of such things arising they would not be worth the cost of pursuit.

What this press release is doing is attempting – as many do – to spread fear among small business, to tell them that the tax man is after them, and then to use information that is nothing to do with the small business sector. In these straitened times, they suggest, small business does not need HMRC on its back. I don’t think it needs pretend friends whispering it ghost stories either, even if it is nearly Hallowe’en.

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