Tax & admin · 6 March 2017

Small firms bear brunt of HMRC corporation tax payment crackdown  

Tax gap
Corporate tax investigators are thought to be unfairly targeting small firms

HMRC raised some £450m in corporation tax payment by investigating small UK businesses in the last tax year, new statistics from accounting firm UHY Hacker Young have shown.

Small firms became an increasingly “easy target” for the tax authority’s investigators in the 2015/16 tax year according to the report, as the amount of corporation tax raised from larger firms last year fell.

Seeking to reduce the corporation tax gap, HMRC collected a total of £2.6bn in corporation tax in 2015/16 – a 25 per cent decrease from the £3.5bn collected the year before.

As a proportion of total UK corporation tax liabilities, small business’ share of the corporation tax gap increased from 9.2 per cent in 2013/14 to 9.5 per cent in 2014/15, while large business’ share remained far lower.

Commenting on the new data, UHY Hacker Young tax partner, Roy Maugham, said it was likely small business owners would continue to be targeted by HMRC, as many lack the resources or knowledge to challenge government investigators.

“Whilst larger companies such as Google or Amazon have the resources to deal with a tax enquiry, smaller businesses could be put under significant financial stress if under investigation by HMRC.

“[HMRC] need to ensure that their investigations are targeted and focus on genuine abuse- those that are knowingly avoiding tax.”

The so-called “tax gap” is the difference between the amount of tax the government should in theory collect, against the amount that’s collected each year. HMRC’s most recent estimates put the tax gap at £3.7bn in total.

Maugham went on to say: “With a high share of the corporation tax gap, [small businesses] are likely to continue to be a target for HMRC in the future. HMRC is under pressure to recover increasing amounts of tax.”

Small UK business’s share of corporation tax, estimated to be owed to HMRC

2013/14

Proportion of the corporation tax gap

2014/15

Proportion of the corporation tax gap

Businesses covered by HMRC’s SME investigations unit 9.2 per cent (£1.8bn) 9.5 per cent (£2.2bn)
Businesses covered by HMRC’s Large Business Directorate 5.6 per cent (£1.4bn) 5.8 per cent (£1.5bn)

 

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ABOUT THE EXPERT

Fred Heritage is deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London. He previously worked as a reporter at Global Trade Review magazine.

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