Compliance investigations into small and medium sized enterprises (SMEs) by HM Revenue & Customs jumped 39 per cent in the last year, according to new research.
According to the data, published on 20 October, investigations into SMEs netted HMRC £434 million in extra tax and fines – on top of tax already paid by the businesses – in 2011-12, up from £311 million in 2010-11 (year end March 31).
The researchers said SMEs were more likely to make innocent errors in tax calculations than larger organisations, offering “plenty of opportunity” for HM Revenue & Customs (HMRC).
They also said that SMEs also faced the hidden costs involved in allocating time to deal with a tax investigation, while they were less likely to challenge a tax investigation and to unnecessarily concede to demands for extra tax.
The researchers said that areas like PAYE and VAT had always been scrutinised to some extent, but HMRC was now looking at issues like corporate entertainment and employee benefits – such as company cars, private healthcare, or company-subsidised fuel costs – that had previously escaped serious scrutiny.
They added: “HMRC’s take on employee benefits in increasingly draconian, for example. Small businesses need to be aware of this when completing their tax returns. The days of HMRC having a relaxed approach to assessing deductions are long gone.”
The SME research was carried out by UHY Hacker Young.