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HMRC clampdown raises £39.5bn – but at what cost?

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27th Apr 2010
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HMRC tax investigations have yielded £39.5bn since its formation in April 2005, but small businesses are suffering under its ‘no mercy’ approach, argues UHY Hacker Young.

The firm says that HMRC’s stringent approach to compliance has resulted in a 64% jump in tax claimed back. CT enquiries into large businesses were cited as the most lucrative activity, raising £12.6bn in additional tax over the last four years. VAT interventions were also a prime source of cash, with a total of £10.4bn of extra tax raised since 2005/6.

However, small businesses are suffering under increased pressure from HMRC, argued Roy Maugham, tax partner at UHY Hacker Young: “Considering the relatively modest amounts of money that HMRC collects through self-assessment enquiries into SMEs you have to ask whether smaller businesses really deserve all the scrutiny they receive,” he said.

Non-compliance investigations into small businesses and the self-employed yielded £359 million of additional tax last year, a figure that has declined over the last two years. 

“It is easier for large companies to sidestep their tax responsibilities because of the accounting and finance departments they can employ… so it is right that HMRC appears to be targeting this area,” said a spokesman for the Forum of Private Business (FPB).

“Cracking down on businesses deliberately trying to evade their tax bills boosts the UK’s economy because it helps level the playing field between these companies and the ones doing their best to pay on time and in full, for whom a ‘zero tolerance’ approach is not applicable.

“That is an important distinction, particularly where smaller firms are concerned. It may be a big shift in attitude for some tax inspectors, but it is important that, following on from the recent changes to its penalties regime and the popular Business Payment Support service, HMRC continues to evolve its approach towards businesses that are in genuine need of support on tax,” he added.

Uncollected taxes
UHY Hacker Young’s comments appear to be at odds with a campaign by the Public and Commercial Services Union (PCS) in January, which argued that HMRC wasn’t doing enough to chase uncollected, evaded and avoided taxes.

The PCS pointed to the £2.7bn rise in uncollected taxes last year and said the percentage of uncollected tax written off as doubtful to be collected had risen from 23% in 2006 to 40% in 2009. “It is no coincidence that as HMRC staff have been cut, the amount of uncollected tax written off as doubtful has nearly doubled,” said Mark Serwotka, general secretary of the PCS in January.

In light of recent developments, AccountingWEB contacted the PCS to see if their concerns remained. A PCS spokesman told us that the £39.5bn collected was “a drop in the ocean compared with the £120bn that is lost to the UK economy each year through tax evasion and avoidance, and because HMRC does not have the resources to collect the money that is owed.

"When the department's own figures show that, after staff costs, each compliance officer brings in £600,000 in tax every year, it makes no sense for HMRC to be cutting their jobs, when this revenue is so vitally needed to support the public services we all rely on."

Complexity
Despite the disparity in these accounts, the concensus from both camps appears to be that the complexity of the tax system is what’s causing the biggest problems for businesses and taxpayers.

Due to current purdah rules, HMRC was unable to offer a detailed response to the furore, but a spokesman issued the following comment: “We operate at all times within professional codes of conduct and our ‘customers charter’ makes clear that we will treat all taxpayers with respect and a presumption of honesty unless there is evidence to the contrary. We use the powers we have with discretion and with sensitivity to the rights and obligations of taxpayers at all times”.

The figures
According to figures from UHY Hacker Young, the following amounts of additional tax were collected by HMRC through tackling non-compliance:

Areas of intervention 2005-6 2006-7 2007-8 2008-9 Total since formation of HMRC 2005/6 v 2008/9
Corporation tax enquiries - large businesses 2,196 2,728 3,916 3,712 12,552 69%
Corporation tax enquiries - small  businesses 758 834 771 793 3,155 5%
VAT interventions - large businesses 1,142 828 770 837 3,577 -27%
VAT interventions - non-large businesses 1,280 1,296 1,845 2,401 6,823 88%
Self assessment business enquiries 308 415 385 359 1,467 17%
Total revenue from non-compliance activity 7,351 8,774 11,249 12,075 39,449 64%

Replies (9)

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By User deleted
28th Apr 2010 12:45

Are we scaremongering again?

We are a sizeable local practice, but pretty small fish overall, and our client base is generally small to small-medium businesses of all shapes and sizes.

I have noticed a significant reduction in enquiries, especially when you take out the 'special interest' ones where they are asking about a particular technical issue. And then on the remaining enquiries I feel HMRC have been entirely reasonable in nearly all cases, and have not taken the case further when there are items which would take significant time, on both sides, to prove either way. If the overall picture looks right then they have promptly closed the enquiry.

Then again, I do take care to ensure that the accounts look reasonable, and that we have explained items like capital introduced, large repairs, unusual items etc in the additional information boxes. And on Ltd cos we analysis sundries etc into other appropriate headings (i.e. if there's £5437 Health and Safety Consultancy we set up a heading call that etc rather than leave it in sundries). Not rocket science, but best practice to protect your client's interests.

I am not saying we are any better than lots of other firms, it's just I get very annoyed at the constant provocative headings and sub-headings in many of these stories.

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By flurrymc
28th Apr 2010 12:52

Table does not add up

There seems to be £11,875M missing.  The columns do not add up to the totals at the bottom.  Is there some other area of interventon that has been ommitted?

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By Simon Sweetman
28th Apr 2010 14:25

small business enquiries

Without a shadow of a doubt, the number of SME enquiries had fallen dramatically.

First of all, this is HMRC's declared policy :

Second, numbers of staff able to do it have fallen off

Third, as a specialist in the area I can assure you that the numbers have reduced by at least 50% and probably more over the last two years.

So it is not the time to try to put the frighteners on small business.

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By User deleted
28th Apr 2010 14:37

HMRC clampdown raises £39.5bn

Pity the benefits office are not as strict with payments to layabouts and scroungers. But that might upset Labour Voters???

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By johnjenkins
28th Apr 2010 15:00

Scaremongering

While stupid figures are bandied about (£120Bn lost through evasion and avoidance) there will always be those that believe our business is so corrupt that there should be another 200,000 tax inspectors to collect this mythical sum.

Listen PCS TAX AVOIDANCE in whatever shape or form is LEGAL and until you come to terms with that not I nor many of my colleagues will treat your arguments with any creedance.

It is a real pity that the sort of effort put in to collect £39.5Bn has not been put in to stop welfare cheats and illegal immigrants etc. etc.

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By chatman
28th Apr 2010 15:30

"Pity the benefits office are not as strict with payments to lay

I was told off and censored on AWeb for defending my use of a mild swear word (directed at a product, not a person), but surely the preceding post, with this comment, is far more offensive, not to mention off-topic.  Makes you wonder how the censors' minds work.

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By psvrichard
28th Apr 2010 23:11

Investigations

Spoke to HMRC today on behalf of a fellow accountant suffering from ill health and their client is being taken to the cleaners.  A CIS rebate of tax led to the investigation and every single thing is being queried.  Client didn't help himself with some rather strange claims (subsistence with kids food on plus occasional missing invoices etc) but the final assessment contains a massive error which results in an overdemand for tax of well over £2k. 

It put the wind up me as a fellow practitioner to make sure my clients are whiter than white.

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Mark Lee headshot 2023
By Mark Lee
04th May 2010 22:45

I don't get it

Headlines:

UHY Hacker Young says stringent regimes are putting SMEs under pressure small businesses are suffering under [HMRC's] ‘no mercy’ approach, argues UHY Hacker Young. you have to ask whether smaller businesses really deserve all the scrutiny they receive

Detail:

Non-compliance investigations into small businesses and the self-employed yielded £359 million of additional tax last year, a figure that has declined over the last two years.the percentage of uncollected tax written off as doubtful to be collected had risen from 23% in 2006 to 40% in 2009

The figures:

Corporation tax enquiries - small  businesses - the amount of tax collected in 2008/09 was actually 5% LOWER than in 2006/07

Self assessment business enquiries - the amount of tax collected in 2008/09 has continued the consistent fall of recent years and is now 14% LOWER than in 2006/07

I'm afraid the detail and the figures do not seem to support the firm's press release headlines.

Mark

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By User deleted
10th May 2010 15:25

Good for HMRC, a move in the right direction ! There are billions missing in evaded tax from small business and more needs to be done !

Those that comply with the rules need supporting by leveling the playing field with the criminal element.

Yes tax evasion is criminal.

Like the above poster, I agree HMRC are usually fair, and we have no problem with them making enquiries, even though these should be directed at firms that have little regards for the rules.

We have some fractious technical arguements but that is par for the course.

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