UHY Hacker Young accountancy group’s new research shows that HMRC gathered £474m in corporation tax from SMEs in the 2016/17 tax year. This is 5% more than the previous tax year.
Isn’t it a good thing that we have as much legitimate tax collected as possible?
Of course, we all think that everyone should pay their fair share of tax. This includes all businesses paying their corporation tax bill in full. But the conclusion of this research brought HMRC’s motives for targeting SMEs into question. Are they focusing on SMEs corporation tax because it is easier to investigate them than larger companies? How fair is this and is it justified?
What is the corporation tax gap?
A tax gap is the difference between amount of tax that is theoretically owed to HMRC and the amount they actually collect. This is then applied to the different types of taxes. So the corporation tax gap applies only to the figures between corporation tax payment expectation and actual bills paid.
Obviously, HMRC are responsible for closing all tax gaps completely and come under pressure from wider government to make sure this is happening.
How much corporation tax are we talking about?
The government’s latest available figures are from October 2016 and refer to the 2014-15 tax year. They show that there was a corporation tax gap of £3.7bn for that year.
What’s wrong with making sure all SMEs pay their correct corporation tax bill?
This new research is not suggesting otherwise. Of course all businesses, of every size, should pay what they owe. It is HMRC’s sudden focus on SMEs that is perceived as potentially unfair, with concern around their motivation for directing attention at smaller businesses.
As reported in the Independent, on of UHY’s tax partners Roy Maugham, said that HMRC are putting the “spotlight onto smaller businesses” because they are “an easier target than many larger businesses” and feels this is “unfair”.
He goes on to point out: “The costs of tax inquiries for SMEs can be high, and the investigations disruptive. Small companies may not have the necessary resources to bounce back, and the investigation could have serious consequences, even if they have made an honest error. Small and medium sized businesses have not been top of HMRC’s agenda in the past, but that is now beginning to change as HMRC are under pressure to recover increasing amounts of tax.”
So HMRC get to recover some of the missing corporation tax, which is better than the potential nothing of more complex investigations into larger companies.
What can SMEs do to avoid a corporation tax investigation?
The main thing is to ensure that your corporation tax return is completely accurate and your full bill is paid in good time. As Mr Maugham advises, SMEs “must ensure they do everything in their power to avoid making small mistakes on their tax returns. These are the things that HMRC scrutinises – and they are not afraid to pull companies up.” Obviously, all your other records and accounts processes also need to be pristine.
