Small businesses pay millions more in corporation tax due to HMRC investigations

Research by accountancy group UHY Hacker Young reveals that HMRC raised an extra £489m last year by targeting small businesses in tax probes.

SMEs viewed by the taxman as ‘easy pickings’?

HMRC appears to be strengthening its tax investigations into small businesses in an effort to close the ‘corporation tax gap’ - the difference between the tax that should be collected and the actual tax that’s received.

As a result, the amount of tax gathered from small businesses rose by £489 million in 2014/15 compared with the previous year.

Meanwhile, the corporation tax gap for bigger companies has seen little change.

According to Roy Maugham, tax partner at UHY Hacker Young, this indicates that HMRC may be ‘aggressively going after small businesses as ‘easy pickings’ […] rather than going after big enterprise.’

This is bound to be hard for many small businesses to swallow, given reports over the last few years that huge enterprises such as Facebook, Amazon, Google and Starbucks have paid minimal UK tax due to elaborate avoidance schemes.

Small businesses hit hard by tax inspections

Although it’s common for a business to face a tax inspection because HMRC believes something is wrong, some companies are just selected at random.

As Roy Maugham points out, small business owners often have to take time out of managing their businesses to respond to tax inspections, and unexpected additional tax bills are likely to hit small business harder than their larger counterparts.

He went on to say:

‘Small businesses have already felt the effects of the taxman’s tougher approach to compliance and the target to bring in billions more may lead to HRMC squeezing every pound it can from SMEs.’

As HMRC works to close the tax gap, it’s likely that it will continue to increase the pressure on small businesses over the next few years. In fact it seems to have been going on for a while.

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