Having identified that they are responsible for almost 50% of the £34billion of uncollected tax in 2015-16, HMRC has confirmed that it is focusing its efforts on around half-a-million small businesses at any time.
There are some 5 million small businesses in the UK and the move by the tax man has been criticised by business organisations and MPs alike due to the impact of a tax investigation in terms of the time and cost versus the likely benefit to UK PLC.
The criticism of HMRC is largely focused on the fact that they seem to be penalising smaller organisations that may not have the skill set to manage an increasingly complex tax structure. Previously these organisations had the option of a local tax office with whom they could discuss tax matters or seek clarification prior to submission. MPs on the treasury select committee questioning HMRC asked whether it was really worth chasing down a small business for the odd missing invoice, especially given the anxiety an ‘investigation’ and its financial impact can cause.
The Federation of Small Business (FSB) said that HMRC has a duty to make the process of calculating tax as clear and straight forward as possible and because this is not currently the case, then HMRC is having to deal with the outcome of that and it is unfair to lay it at the door of the small business owner.
In response HMRC said that most businesses pay the correct amount of tax and that their focus was on those that gain competitive advantage by not complying with tax legislation and therefore HMRC were justified in chasing this down. In addition to those deliberately avoiding and evading tax, they were aware that some were falling foul as a result of error or a lack of attention to detail.