Tax & admin · 21 August 2017

HMRC rakes in extra 3.4bn from small businesses underpaying VAT

Pressure is mounting on smaller businesses to comply with VAT rules
Pressure is mounting on smaller businesses to comply with VAT rules
An additional 3.4bn was collected by HMRC from small UK firms last year because owners underpaid VAT, according to recent findings.

In the year to April 2017, revenue related to VAT accounted for almost half of HMRC’s additional tax take from investigations into small and medium-sized companies by two compliance teams the Individuals and Small Business Compliance Directorate and the Wealthy and Mid-Sized Business Compliance Directorate.

The proportion is higher than the 45 per cent of additional VAT taken the previous year in the UK as a result of similar investigations, suggesting that HMRC is ramping up the pressure it’s putting on smaller businesses to comply with VAT rules.

The research, published by tax investigation insurance experts PfP, also implied that HMRC pressure on small business would continue to grow in the future, warning owners of the growing importance of remaining tax compliant.

Commenting in the additional pressure business owners face, managing director of PfP, Kevin Igoe, said: In order to avoid scrutiny from the revenue, [small businesses] must make sure they are filing their returns correctly, so as not to incur a hefty fine.

it’s clear from the high tax take that HMRC have found investigations into SMEs to be fruitful, and therefore it is likely that this focus on smaller organisations will continue. VAT can rake in a lot of extra revenue for HMRC, and therefore the taxman is prepared to use all means at its disposal.

According to Igoe, HMRC has recently been able to increase the scope of its Connect database to catch a larger proportion of offending firms.



Fred Heritage was previously 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.

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