HMRC are tackling tax avoidance among businesses, and they have set their sights on small businesses in particular because they are seen as the easier target. Small businesses do avoid tax, this could be unknowingly or knowingly, but there are steps you can take to avoid falling foul of HMRC’s tax crackdown.
Research has proven that HMRC’s tax crackdown will focus solely on small businesses as they are easier to take on than bigger businesses. Over the 2016/2017 tax year HMRC has collected £474million in corporate tax as part of their investigations into the small business sector.
Phil Sayers from Clear Books has explained more on this: “If HMRC thinks that small businesses have deliberately or even accidentally understated their earnings and therefore their tax liabilities, then the penalties can be really quite prohibitive. HMRC can backtrack several years into their financial affairs, which can be both hugely time consuming and the penalties that could be imposed could be quite onerous. So for an SME that gets it wrong, even accidentally, it can cost them a lot of money.”
HMRC is hesitant to go after bigger businesses because large businesses usually have in-house tax and legal professionals to ensure that all the activity is legally correct. Additionally, if they have played a part in tax avoidance then they are more likely to be prepared to justify or deny it as they have professional advice on hand. They are also able to hire professional lawyers if they don’t have an in-house team and have the backing of bigger funds if they were to be involved in a legal battle. With all the backing these large businesses have, HMRC would likely negotiate a settlement deal, which would not be offered to small businesses.
To ensure that you are not avoiding tax from now on you should get advice from your accountant. Both you and your accountant should make sure to check over any mistakes in your company records and accounts. If you do not have a professional accountant, then perhaps accounting software would be beneficial for you. An accountant is almost an essential part of a well-established small business though as they will help you stay within the legal and tax laws.
“If you are the type of business that collects its receipts in a shoebox, for example, there is every possibility you are going to lose receipts along the way that then can’t be included in your accounts, thereby increasing the stated profit you have made. Moreover, if you are trying to do your own accounts you may not know about the things you can quite legitimately claim as business expenses and therefore use to reduce your profits and your tax liability” said Sayers “So having some form of mechanism to keep up to date records of your financial affairs is a major step towards avoiding those sorts of issues.”