Tax receipts from investigations by HM Revenue and Customs (HMRC) into small and medium-sized businesses have increased by almost a third (31 per cent) in the last year, according to new figures revealed by UHY Hacker Young.
Heightened investigations into SME tax compliance raised £565m for HMRC in 2012-13, up from £434m in 2011-12 (year ending March 31), according to the report.
In his 2010 Spending Review, Chancellor George Osborne set a target to recoup an extra £7bn a year in additional tax revenues from increased compliance activity.
Roy Maugham, tax partner at UHY Hacker Young, believes SMEs are a much easier target for HMRC as many small firms don’t have the budget to have a dedicated accounts or financial team to oversee their affairs.
"Small businesses are bearing the brunt of HMRC’s tougher approach to tax investigations," he said.
"Small and medium-sized businesses are often less likely to have accountants to manage their finances, making them prone to mistakes when filling in returns and therefore an easy target for HMRC.
"That also means they are in a weaker position to negotiate over allegation of underpaid tax than a big corporate."
Over the last three years, HMRC’s taskforces have focused on tax evasion in a variety of high-risk sectors. HMRC said its taskforces have raised more than £80m since 2011 and expects to recoup a further £90m a year from new taskforces launched in the next three years.
These taskforces are part of £917m in government funding from the Spending Review, tackling tax evasion, avoidance and fraud from 2011-12.
HMRC added that the targeting of different industries is a clever use of their resources, while some tax experts question whether such modest returns from some campaigns are worth the hassle.
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