I keep reading in the press that HMRC are under pressure to increase tax yields, what tactics have HMRC employed in recent years when enquiring into SMEs?
Historically, HMRC have not differentiated in their treatment of large and small businesses. Therefore SMEs have always struggled with the ‘one-size fits all’ attitude which results in the application of rules and procedures which in reality are designed for larger businesses.
Over the past few years HMRC has looked at various ways to improve the relationship they have with SMEs and reduce the tax administrative burdens faced by the smaller business. A number of initiatives have already been introduced such as providing help for those new to business, with HMRC offering SMEs the opportunity to sign up and receive regular emails which offer help and support, including access to interactive tools, factsheets and webinars.
In April 2011 HMRC started a programme of Business Record Checks, looking at the standard of statutory business records held by SMEs. Although the programme was suspended in response to views expressed by businesses and representative bodies, by this time HMRC had already identified that four out of every ten businesses checked had inadequate records. Whilst this highlighted the further need to simplify the tax system for smaller businesses, it also guaranteed to ensure that SMEs will remain under HMRC scrutiny.
HMRC have continued to put considerable effort in to the SME sector via PAYE and VAT compliance visits, in essence more enquiries but with a view to closing them off quicker.
Along a similar thread of moving enquiries and disputes along at a greater pace HMRC introduced the Alternative Dispute Resolution (ADR) service for SMEs. This was with a view to avoiding tribunals. HMRC have claimed some success with 60% of the disputes arising during compliance checks and referred for ADR being fully or partially resolved without the need to go to a tribunal, saving real time and cost for those involved. The debate over whether ADR is the right vehicle, when after all the ADR is a completely HMRC staffed process, is an entirely different discussion.
Although simplification of the tax system and the way it operates is of course welcome the reality of the situation is that with HMRC under pressure to increase tax yields, HMRC activity is at its highest level, with more SMEs being enquired into, than have been for quite some time.
SMEs should consider purchasing Fee Protection Insurance to protect against professional fees incurred by their accountant dealing with an HMRC enquiry. This cover should be available via your accountant, if it is not you can purchase this cover directly from Peninsula by visiting www.feeprotectiondirect.com.
“Our tax specialist can be contacted on 01455 852550 should you require any further advice.”