SMEs face £3.4 billion bill following VAT investigations

HM Revenue and Customs (HMRC) collected an extra £3.4 billion from small- and medium-sized businesses as a result of underpaid VAT in the last financial year.

According to tax investigation insurer PfP, investigations into the potential underpayment of VAT in the 2016/17 financial year led to an extra £3.4 billion collected from SMEs.

VAT revenue accounted for 49 per cent of the additional tax take from investigations into SMEs by HMRC, it reported – a figure that increased from 45 per cent the year before.

The firm said that this is a trend that will likely continue as the tax authorities attempt to tackle tax evasion, increasing scrutiny on those who make small mistakes.

“Over the years HMRC has widened its net – cracking down on smaller businesses, as well as larger organisations,” said Kevin Igoe, managing director of PfP.

“It’s clear from the high tax take that HMRC have found investigations into SMEs to be fruitful, and therefore it is likely that this focus on smaller organisations will continue.

“In order to avoid scrutiny from the revenue, SMEs must make sure they are filing their returns correctly, so as not to incur a hefty fine.

“VAT can rake in a lot of extra revenue for HMRC, and therefore the taxman is prepared to use all means at its disposal. This will include the use of its Connect database and taskforces to identify those it suspects may be underpaying on their tax as well as more aggressive tactics such as APNs and property raids.”

PfP says that as of September 2016, HMRC’s Connect software’s powers have been extended further still as it is granted access to files held by banks and other financial institutions based in British overseas territories.

The software was developed to access and trawl databases of personal and commercial financial information, in order to identify offenders.

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