Targetting the Tax Gap - watch out SMEs

It’s no secret that following pressure from the Government to reduce the tax gap, HMRC has turned its tax-collecting attention on SMEs. This is borne out by a recent National Audit Office report on HMRC accounts which shows that 44% of HMRC’s predicted revenue tax gap relates to SME’s; Corporation Tax and VAT form 47% of the tax concerned.

As HMRC cracks down on tax avoidance by increasing investigations into corporation tax payments, it’s especially important for small business owners to improve their record keeping and avoid mistakes on tax returns.

According to research by accountancy group UHY Hacker Young, HMRC collected an extra £474m in corporation tax as a result of investigations into SMEs in the 2016/17 tax year.

HMRC's determination to turn up the heat on tax avoidance and evasion has been further demonstrated by the introduction of the Criminal Finances Act on September 30th 2017. This has given HMRC powers to pursue the possible facilitation of tax evasion anywhere in the world if it involves a UK tax liability.

HMRC are also increasingly willing to hand out severe penalties where liabilities have not been paid, even where mistakes by business owners are accidental.

Uncertain times for Small Businesses

Unfortunately small businesses seem to be hit on all sides. Rising prices, increased business rates, the rise in the minimum wage, auto enrolment pension payments and in some cases the decrease in the value of sterling place increased cash flow pressures on a business.

When a small business begins to struggle financially, invariably the first thing to get delayed is the payment that is due to HMRC. Often this leads to HMRC being the largest single creditor in insolvency.

As HMRC looks at reducing the tax gap, recovery and enforcement actions are likely to get earlier and earlier in the process. Consequently, the closure of a business could come quicker that might have been the case in the recent past.

It is likely that over the next few years the number of business failures in the SME market is set to rise despite the relatively low level of insolvencies in the past few years.

Is your business facing difficulty?

So what should you do if faced with recovery and enforcement action from HMRC?

Well the straight forward answer is take advice as early as possible. In the first instance, we would always recommend that you see your current advisors and if necessary take advice from an Insolvency Practitioner.

An experienced IP will be able to talk through the current problems, assess the financial position and look at the alternatives available to your business and advise accordingly.

Prevention is better than cure

It is a recurring theme of the articles published by MLG Associates over the past few years that robust business plans which are regularly reviewed against actual results are the only way in which a business can properly establish how it is performing and whether corrective action needs to be taken. In these uncertain times this is as true today as ever.

For reliable, positive and impartial advice about your business challenges, contact Mike Grieshaber on 0118 973 7776 for a free consultation.