HMRC have actually collected £3.4bn more in VAT from SMEs in the last financial year through the use of tax investigations.
How has this happened? And is this something you should be worried about?
HMRC’s brand new compliance units
PFP, the firm which broke the news story about the collection of the additional £3.4bn in VAT payments in an article on the Accountancy Age website, discovered that HMRC have set up two new teams with the specific intention of collecting more tax from people and businesses they suspect are underpaying. The names of those teams are:
- the Individuals and Small Business Compliance Unit, and
- the Wealthy and Mid-Sized Business Compliance Unit.
And they’ve been pretty successful so far.
Digging into the numbers, PFP uncovered that 49% of the extra tax brought in from HMRC’s investigations came from undeclared or erroneous VAT. That’s up from 45% in the year prior and that in 2016/2017, this additional VAT added up to £3.4bn. Other taxes claimed through these probes brought in £3.5bn.
Kevin Igoe, managing partner of PFP, told Accountancy Age that “VAT investigations into SMEs (by the Individuals and Small Business Compliance Unit) have proven incredibly rewarding for HMRC. The figure will be driven by a combination of carelessness, genuine error or misunderstanding, as well as deliberate and calculated underpayment.”
Meet Big Brother’s little brother, “Connect”
A major asset used by HMRC but not very well-known amongst the general public during these investigations is an enormous database called Connect.
Think of it as a massive central knowledge hub powered by an incredibly complex algorithm that looks for “income disparities”.
For example, if a self-employed director has been paid £20,000 in wages and dividends for the last two years but s/he’s just moved into a one-million-pound home, that’s the type of thing Connect flags up.
HMRC via Connect has a file on every single citizen. It cross-references data about everyone from government and private sector databases, including:
- Bank accounts and pensions
- Council tax
- Credit and debit card transactions over the last four years
- Credit reference agencies
- Companies House
- DWP (former Benefits Agency)
- eBay and other internet marketplaces
- The electoral roll
- Gas Safe Register
- Insurance companies
- Land Registry – for capital gains tax
Looking at that list, you can see that there are lots of chances for people not paying the right level of tax (and that’s any form of tax) to get found out because of Connect’s singular computing power, the encyclopaedic information on it, and how smart the system is that looks for disparities.
Should you be worried?
Many Smart Team clients have specific insurance protecting them against HMRC investigations for themselves and their businesses.
According to the Federation of Small Businesses, “on average, full HMRC investigations last 16 months and costs a potential £5,000 in accountancy fees”. Taking out this insurance is wise, not just for the financial protection it offers you but because you can engage not only the services of your Smart Team accountant but solicitors and tax experts.
Do you believe there’s something wrong with your tax? Do you have a feeling, no matter how unfounded, that someone needs to look at your books to make sure everything’s OK? If so, talk to us first.
We’ll work with you, put together a plan, and then go to HMRC with the correct figures and an explanation they’re more likely to accept as plausible and truthful. Please be in no doubt that, even doing it this way, there’s going to be a cost to you and the whole process is going to hurt.
However, please also believe us when we say it’s better to tell them rather than they discover that something is wrong first. It’s always better to make the first move.
Get in touch for more help
We’re here to help. Ask Smart Team for any assistance you need on taxes by calling 01202 577500 or emailing firstname.lastname@example.org