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SMEs increasingly likely to be targeted by HMRC investigations, data reveals

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SMEs increasingly likely to be targeted by HMRC investigations, data reveals

A new study suggests that small and medium-sized enterprises (SMEs) are growing increasingly likely to be targeted by tax enquiries led by HM Revenue & Customs (HMRC).

According to reports, the tax authority has been broadening the types of businesses it targets with enquiries in recent years, in a move which managed to net HMRC £504 million in extra tax in the 2016/17 financial year alone.

Analysis of the latest data suggests that the amount of tax collected in 2016/17 as a result of tax investigations into SMEs was up by eight per cent on figures recorded in 2015/16 – and it is suspected that this upward trend will continue as the tax authority continues to sharpen-up its investigation procedures.

HMRC has been accused of taking an “increasingly aggressive” stance towards SMEs, amid concerns that such businesses are unfairly deemed “easier targets” by tax officials.

The criticisms come amid concerns that HMRC previously only targeted cash-only SMEs, for example, as part of compliance investigations – yet such organisations are now frequently facing enquiries of all kinds.

Specifically, in recent years the Revenue has been cross-referencing data of all kinds using its Connect database – which has been described by the press on multiple occasions as HMRC’s “supercomputer.”

The Connect system enables the tax authority to cross-reference records with other sources – such as its Card Transaction programme, which monitors debit and credit card transactions – in order to identify discrepancies between the amount of income a business declares and the amount of income it actually receives.

Companies are being reminded that even the most basic tax errors in returns can now be very easily picked up by Connect and often can – and do – lead to subsequent enquiries and investigations.

Businesses should always seek specialist tax advice from the outset to minimise any potential errors which may increase their chances of facing an investigation.


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