Small and medium sized businesses are an “easy target” for HMRC’s cash drive, according to UHY Hacker Young.
The top 20 firm found via HMRC’s annual report and a freedom of information request that the extra tax yield from compliance investigations into small firms by HMRC had jumped 39% in the last year. On top of taxes already paid by these businesses, HMRC took £434m in extra tax and fines in 2011/12, up from £311m in 2010/11.
Roy Maugham, tax partner at UHY Hacker Young, said in a press statement: “HMRC has been set a challenging tax yield target by the Chancellor, and small businesses have found that they are an easy target for HMRC’s crackdown.”
HMRC denied it was targeting small businesses.
A spokesperson said: “We enforce the tax rules consistently across the board, putting our resources where there is the most serious risk of tax loss - from the large corporates to the sole trader. It would be wrong for a minority of businesses who aim to get around the rules to achieve a commercial advantage over their honest competitors. This approach is in the interests of the vast majority of small businesses who have decided to play by the rules.
“We collected an additional £29bn in large business compliance revenue since 2006-07. From 2006 to March 2012 the High Risk Corporates Programme (HRCP) resolved more than 1,800 issues and brought in £16bn of this additional revenue.”
HRMC added that the compliance yield had gone up, but said the figures were not comparable on a year-by-year basis due to changing data methodologies and that they were not targeting SMEs per se.
This makes it difficult to draw any firm conclusions from HMRC’s numbers.
Maugham called the response “counter-spin” and said he failed to see how the figures were not comparable.
A cursory glance at the official tax gap figures flags up further indications that the department’s crackdown has targeted small and medium sized businesses more.
While the two sets of figures are not comparable, data from the tax gap report lend some credence to Maugham’s small firm targeting theory.
According to the HMRC stats (page two of the tax gap document) nearly half of the 2010-11 tax gap can be attributed to small and medium-sized businesses, with only a quarter from large businesses. “So clearly SMEs are a significant area of their activity,” Maugham said.
He added that HMRC has been targeting tax areas that have previously been relatively overlooked in an attempt to increase tax revenue.
“Areas like PAYE and VAT have always been scrutinised to an extent” he said, “but HMRC is now looking more closely at issues like corporate entertainment and employee benefits – such as company cars, private healthcare, or company-subsidised fuel costs – which had previously escaped serious scrutiny.
“HMRC’s take on employee benefits in increasingly Draconian, for example. They’re looking for any minor compliance slip by a business: whether it has reported the right thing at the right time, or challenging whether company cars are genuinely being used for company business at any given time.”
Smaller businesses have also been the targeted by HMRC’s wave of taskforces and amnesty campaigns during the past two years.
In contrast, under the Dave Hartnett-inspired light touch approach with big business, HMRC has also been more willing to go for negotiated settlements.
“Proportionately large businesses suffer far less disruption to their business through tax enquiries as they typically have specialist teams or personnel outside the direct business team to deal with same,” Maugham added.