HM Revenue & Customs (HMRC) collected £3.3bn in underpaid VAT from SMEs and wealthy individuals over the past 12 months, suggesting this sector is coming under increasing scrutiny.
HMRC set up the Individuals & Small Business Compliance unit and the Wealthy & Mid-sized Business Compliance unit specifically to undertake this kind of work, which is becoming a “rich seam” for maximising tax revenue.
It is hardly surprising they have done this, as the total sum raised through tax investigations by local compliance teams in 2015/16 was £7.7bn and additional VAT revenue accounted for 45 per cent of the additional tax take in 2014/15.
Given the success of these investigations, it is little wonder that VAT has become a key area of focus for the taxman and it is likely that the pressure on SMEs will increase. Therefore, small firms need to be wary of potential pitfalls when submitting information to HMRC.
As one commentator remarked, while the vast majority of SMEs are careful and honest when submitting their tax returns, genuine mistakes can be made but it can be hard to prove that these were the result of misunderstanding or carelessness.
Meanwhile, the actions of a “rogue few” who make “deliberate and calculated” underpayments mean that HMRC is likely to look closely at the tax affairs of everyone over the coming months.
It is therefore vital that businesses have their tax records and systems in order and any uncertainty over when and how much VAT should be paid needs to be cleared up via professional advice.
Tax investigations can be lengthy, costly and very disruptive to small businesses in particular, as they are unlikely to have in-house tax specialists or the resources to cover while the investigation is ongoing.