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July 20, 2018

One-in-Ten Small Businesses are Currently under Investigation by HMRC

According to a new statement from HMRC, 10 per cent of all small businesses in the UK are under investigation – equivalent to more than half a million at any one time.

HMRC recently told the Treasury select committee that it is going after small businesses to reclaim £34bn in tax that it was unable to collect in 2015-2016.

According to HMRC, small businesses are responsible for 46 per cent of this tax gap.

Numerous investigations of this nature have been sparked by compliance tests carried out on VAT returns, self-assessment returns and corporation tax returns.

If something seems unusual, HMRC will investigate.

What are the main reasons for HMRC investigating small businesses?

HMRC says that a lot of the tax not paid by small businesses is “not through deliberate evasion or avoidance, [but] through either failing to take reasonable care or through error.”

“Facing a tax investigation can be stressful, disruptive and cost time and money for a small business owner,” says David Richardson of HMRC.

“On average, a full HMRC investigation lasts 16 months and can cost businesses thousands of pounds in accountancy fees.”

And this is what Mike Cherry, the National Chairman of the Federation of Small Businesses, had to say: “While small businesses have a duty to comply fully with their tax obligations, HMRC also has a duty to make that process as clear and straightforward as possible. Unfortunately, the system is very complicated and the average small business loses three working weeks a year to tax compliance.”

How can you protect yourself against future and current HMRC investigations?

Legally, businesses must keep records for all PAYE items including NMW/NLW (National Minimum and National Living Wage), VAT etc.

Therefore, the most important piece of advice to follow is that you ensure your record keeping is watertight. Also, ensure that you keep receipts of all business sales and purchases so you can provide this information to HMRC quickly, and easily, if requested for VAT purposes.

If HMRC announces that they are looking more closely at a company it can be both daunting and frightening for the business owner. If you are concerned, please contact Moorepay for a free consultation.

You can also download a free “Quick Guide To Surviving an HMRC Investigation” to help you through this scary time should it happen to your business.

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About the author

Sara Wilson

Senior Marketing Manager

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