HMRC Amps Up SME Compliance Activities

HM Revenue and Customs (HMRC) collected an additional GBP470m (USD6661.1m) from investigations into the tax affairs of UK small businesses (SMEs) in 2014-15, according to research by accountancy group UHY Hacker Young.

UHY Hacker Young said that SMEs could be seen as a „soft target“ for HMRC because budgetary constraints mean that small businesses do not tend to have tax specialists in-house, making it harder for them to challenge tax bills they regard as unfair or inaccurate. The group pointed out that the tax take from investigations into large businesses fell by 13 percent last year, from GBP4bn in 2013-14 to GBP3.5bn in 2014-15.

Roy Maugham, Tax Partner at UHY Hacker Young, said: „Small businesses have already felt the effects of the tax man’s tougher approach to compliance, and the target to bring in billions more may lead to HRMC squeezing every pound it can from SMEs. As well as being more likely for SMEs to make a mistake when it comes to their taxes, they are also less likely to effectively negotiate if they disagree with HMRC’s demands as they will feel out of their depth and fear arguing with the tax man will lead to substantial costs and protracted disruption.“

According to UHY Hacker Young, recent HMRC research revealed that late payment of tax by SMEs is most often induced by poor administration, cash flow problems, and the late payment of debt. UHY Hacker Young added that HMRC is establishing a wider range of specialist taskforces, designed to build on and upgrade the operations of its regional offices, 170 of which face closure. It warned that this could lead to still greater administrative burdens being placed on SMEs.

Maugham said: „HMRC is on a drive to increase tax-take. Its methods have changed in order to achieve this – it now focuses on specific subsectors, and even on specific issues like corporate entertainment.“

„The Revenue can, on occasion, be understanding and accommodate requests for extensions to tax payment deadlines for example. Under the new system, however, small discrepancies will be far more likely to trigger an investigation. SMEs are highly advised to try and get their books in order and make payments within the requested time period in order to avoid a visit [from] the taskforces – and the prospect of an undoubtedly unwelcome fine.“

UK Legislates For 2016 Budget Tax Changes

The UK Government has introduced legislation to implement a range of tax measures announced in the Budget, including changes to income tax thresholds and a corporation tax cut.

Finance Bill 2016 was introduced in Parliament on March 24. It provides for a rise in the tax-free personal allowance to GBP11,500 (USD16,300) from April 2017. The allowance is already set to rise to GBP11,000 from April 2016. In addition, the legislation increases the threshold for the „higher“ (40 percent) tax rate from GBP42,385 to GBP45,000 from April 2016. Taken together, the Government expects these reforms to reduce tax for more than 31m people. A tax-free Personal Savings Allowance of GBP1,000 (or GBP500 for higher rate taxpayers) for savings income or interest will enter into force from April 2016.

The Finance Bill reduces the corporation tax rate to 17 percent from 2020. It had previously been scheduled to fall to 18 percent that year. The rate is currently 20 percent.

Also on the business tax front, the legislation overhauls the oil and gas tax regime. It halves the Supplementary Charge, payable in respect of adjusted ring-fenced profits, from 20 percent to 10 percent, and reduces the Petroleum Revenue Tax from 35 percent to a zero rate.

In addition, the Bill contains a number of anti-avoidance measures. It introduces new rules to address hybrid mismatch arrangements and ensure that payments for the use of intellectual property based overseas are subject to tax. It proposes that profits from the development of UK property are always subject to UK tax, and targets value-added tax evasion by overseas sellers and online marketplaces.

Finally, the Finance Bill establishes the Office of Tax Simplification on a statutory basis.

Financial Secretary to the Treasury David Gauke commented: „This Finance Bill takes bold steps to deliver long-term solutions to long-term problems. This legislation will see workers keep more of their pay packet, savers rewarded, and reduce the burden on businesses so they can invest and create jobs. The UK is forecasted to grow faster than any other country in the G7 – this legislation delivers the reforms needed to ensure the UK remains fit for the future.“