HMRC has raised £3.5bn in the last year through investigations into the under-payment of VAT by small businesses, suggesting that these businesses are coming under increasing scrutiny
Increased VAT revenue accounted for almost half (45%) of the additional tax yield in 2014/15 from investigations by the local compliance teams used by HMRC to monitor small and medium sized businesses. The full sum raised through tax investigations by local compliance teams last year was £7.7bn.These figures illustrate two things:
- VAT is an important area of focus for HMRC as it looks to maximise tax revenue,
- SMEs are a key group of businesses for HMRC
HMRC recently announced that 170 of its regional offices, will be closing as they prefer to utilise specialist taskforces to carry out tax-related investigations. This strategy is likely to increase the focus on small and medium sized businesses.
VAT irregularities are a fruitful area for HMRC as the tax is notoriously complicated with slight differences in details resulting in very different tax treatments. As a result the area is coming under increasing focus from HMRC. SMEs therefore need to be particularly careful of potential pitfalls when considering the VAT liability of supplies. Mistakes are most commonly made when businesses are carrying out transactions that are new or unusual for them.
In addition to utilising taskforces, HMRC has also spent £80m on Connect, computer software that has been developed to access and trawl databases of personal and commercial financial information. In HMRC’s own words:
“Connect is a data matching and risking tool that allows us to cross match one billion HMRC and third party data items to uncover hidden relationships between people, organisations and data that we could not previously identify. For the first time we can see, at the touch of a button, more information in one place for a taxpayer.”
As of September 2016, its powers will be extended further still as it is granted access to files held by banks and other financial institutions based in British overseas territories.
Taken together, the Connect database and the utilisation of the highly efficient task-forces are homing in on those who either intentionally, or more likely unintentionally, submit incorrect VAT returns.
If you have any questions on VAT , or simply want to make sure you stay on the right side of the VAT-man, contact us on 0845 177 5500 or using our on-line form.