HMRC tax investigations into small businesses yield little compared to larger firms

Posted in bytestart.co.uk

A leading accountancy group points out that tax investigations into large companies are 18 times more productive than those into small businesses.

For every £1 HMRC spent on investigations into multinationals during 2008/09, they clawed in £181 of tax. In contrast, tax investigations into SMEs and private individuals only generated £10 of extra tax for every £1 invested.

Roy Maugham, Tax Partner, of UHY Hacker Young says: “The Government is under pressure to reduce the UK budget deficit and the expectation is that they will try and collect more money from tax investigations. If that is the case these figures suggest that HMRC should avoid focusing on SMEs.”

“Not only are the amounts of money to gain from investigating SMEs far smaller but also small businesses feel the pain of tax investigations much more acutely than multinationals.”

The Liberal Democrats made a manifesto pledge to collect an extra £4.6bn by clamping down on tax in avoidance.

The accountancy group explains that when a smaller company is investigated by HMRC a higher percentage of that business's senior staff will be tied up dealing with HMRC than with a larger company.

“Many smaller businesses won’t have an internal finance function to help deal with a tax investigation. The most senior managers may have to sit in meetings with HMRC and they will probably have to pay for external tax advice.”

In the past 12 months though, HMRC has generated £4.9 billion through tax enquiries into multinationals, but just £359 million from Self Assessment business and personal tax enquiries.

“If we are set for a period of more frequent and more aggressive tax investigations we hope that HMRC shows some sympathy for SMEs – the statistics show it would be in HMRC’s favour if they did.”

Posted by Joe Martin providing business services for small businesses and the self employed. Go to http://www.joemartin.co.uk