HMRC continue aggressive approach to reduce the “tax gap”
At present, the “tax gap” (the difference between the amount of that should (in theory) be collected by HMRC against what is actually collected) stands at £36 billion, 6.5% of theoretical tax liabilities – the smallest gap for more than ten years.
In 2015, the Government announced that through their robust stance they intend to raise an additional £5 billion in taxes per year until 2019/2020 from companies and individuals, therefore they’re actively pursuing businesses. VAT is a large chunk of uncollected taxes, accounting for £12.7bn – more than one third when split by type of tax (e.g. Income tax, National Insurance Contributions, Corporation Tax, Capital Gains tax, VAT etc.).
Whilst much of the discussion around this “tax gap” and the collection of these taxes is pointed towards avoidance/ evasion, it’s important to remember that HMRC still target businesses that may have made a mistake/ interpreted information incorrectly. Therefore their mandate is very far-reaching.
Almost 40% of the reasoning behind uncollected taxes are cited as; “Failure to take reasonable care”, “Error” or “Legal interpretation” – which all may be an individual carrying on with business and not knowing they are not abiding by the letter of the law. In comparison 27% is down to either “Criminal activities” or “Evasion”.
HMRC are able to investigate anyone, and whilst you may consider your tax affairs well-presented and in good order, they could still seek to raise an enquiry against your business. With the use of technology, HMRC are able to plug into various sources using their “Connect” database, which utilises various data sources from both public and private sources (including banks, Land Registry, local councils and even social media) to build up a picture of your lifestyle and your business and flag up any irregularities.
They also like to name and shame, by publishing details of deliberate tax defaulters. Their “naming and shaming” powers are well established, and convincing HMRC that errors and omissions were not deliberate or obtaining maximum penalty mitigation is critical to avoiding publication of the offending party’s details.
Certain industries are sometimes targeted by HMRC, we recently acted on a case where HMRC had reviewed a construction business, and where certain items had been zero rated by the business, HMRC decided that they had been incorrectly rated and needed to be altered. This alteration led to HMRC seeking a significant increased payment from the client.
Our VAT team reviewed the initial rating, and HMRC’s review, and argued on behalf of the client that the rating applied by HMRC was particularly harsh, and in places completely disagreeing with HMRC’s judgement. Following our review and consultancy, it led to a reversal on areas of HMRC’s re-rating, and leading to the client no longer having to pay back HMRC over £100,000.
This harsh tact by HMRC is something our team are seeing more often, and without the proper professional advice, businesses such as the aforementioned would’ve been looking (and in some cases potentially paying) the additional £100,000 to HMRC. This is an example of the latest aggressive approach undertaken by HMRC to bridge the tax gap.
Our VAT team are carrying out full VAT reviews, VAT health checks or pre-inspection health checks to identify potential issues and avoid disputes with HMRC due to the stepping up of investigations in order to close the tax gap.
In short, HMRC are on the hunt and are targeting all types of business and individuals regardless of industry or size, guilt or non-compliance. Investigations can be costly and our expert advice is not covered through your usual accountancy fee. However, here at Cowgill Holloway we have an expert protection service which protects you from the professional fees associated with us in dealing with a HMRC enquiry on your behalf. We manage your case from start to finish, reducing stress and providing peace of mind. Taking out a subscription to our service means that fees of any investigation are one less thing for you to worry about.
For more information about HMRC’s investigations and our VAT services, contact us.
Protect yourself today – find out more about Tax Investigation Service.
This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.
The information was correct at time of publishing but may now be out of date.