The United Kingdom tax authority has been accused of going after low-hanging fruit in its quest to narrow the tax gap. Accountancy firm UHY Hacker Young reported last month that HM Revenue and Customs collected almost GBP500m (USD660m) in additional revenue from its compliance investigations in 2016/17, a five percent increase over the previous year. And Roy Maugham, a tax partner at UHY, is clear that HMRC is focusing its compliance activities on small firms because they are “an easier target than many larger businesses.”

He also emphasized that such audits can have a disproportionately detrimental effect on these taxpayers. “The cost of tax inquiries for SMEs can be high, and the investigations disruptive,” he noted, adding: “Small companies may not have the necessary resources to bounce back.”

Maugham suggested that the best way for small business to avoid being in HMRC’s sights is to make sure they complete their tax returns correctly in the first place. The problem many small businesses face, however, is that domestic law is often unclear.

So, yes, small businesses can help themselves by ensuring their tax returns are as accurate and honest as possible. But equally, they can hardly be blamed for falling down trapdoors set by less-than-perfectly drafted tax law and tax breaks aimed at entrepreneurs, or for claiming more tax relief than was intended when outdated tax relief measures begin to show their age.

The latter point was raised recently by the Chartered Institute for Taxation (CIOT) in the UK, when it urged the Government to ensure that tax reliefs intended to help small businesses grow are reviewed at regular intervals. The CIOT also implied that it’s time to dispel some myths about small businesses, their owners, participants, and investors, and separate “fact from fiction” with regards to tax reliefs: they’re there to be used, and aren’t, for the most part, being misused.

Ultimately, perhaps small businesses need more help. Tighter definitions might be start. Indeed, this references small companies, small firms, small businesses, SMEs, the self-employed, and individuals in businesses, being terms often used interchangeably, but in terms of tax outcomes, they can be miles apart in many jurisdictions, and governments are often guilty of blurring the lines too.

For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look

united kingdom