Whilst George Osborne, the British Minister of Finance, has suggested that multinationals that use aggressive tax planning tactics to reduce their corporation tax liabilities will face far greater levels of scrutiny, there have been indications that HM Revenue & Customs (HMRC) are expected to step up their overall pursuit of tax investigations, and small businesses are thought to be vulnerable targets as HMRC look for ways to diminish the ‘tax gap’.
Chancellor Osborne has made a joint statement with the German finance minister Wolfgang Schäuble at the G20 summit in Mexico calling for co-operation to reduce corporation tax opportunities which currently exist for the likes of Google, Amazon, Starbucks and Pfizer, who have been reported to pay between 0 and 2.5% UK corporation tax. However going after the ‘big corporates’ is likely to be a long and drawn out affair, whilst a ‘short term fix’ to the problem would be to target smaller businesses.
It has been estimated that the UK tax gap for the year 2010/11 stood at £32bn, which is a billion pound increase from the previous financial year. It is hardly surprising that the Government has allocated £917m to tackling the problem, and HMRC’s Chief Executive, Lin Homer, has voiced her opinion, “to support the honest majority and to crack down on evasion, avoidance and fraud … We are determined to do more and we are devoting increasing resources to pursuing those who do not pay the tax they owe.”
One of HMRC’s new initiatives is the use of the social media portal Twitter. ‘@hmrcgovuk’ was initially set up to remind taxpayers about their impending deadlines, but HMRC have amended the application so that individuals can tweet numerous types of information. This includes the opportunity to report tax-evading activities in local neighbourhoods. A simple tweet may eventually lead to an Inspector knocking on the door of an unsuspecting small business.
Leaving social media aside, HMRC can generate compliance checks on a company at any time by virtue of iXBRL tagging. Even an out of place figure on a tax return would give reasonable grounds for the tax inspector to pay a visit to a small business. In these threatening times, how should companies mitigate the chances of an unwanted encounter with HMRC? First and foremost, they should ensure all records are kept accurately and are up to date. Filing tax returns with sufficient levels of disclosure and on time is a good indication to HMRC that your business is doing its upmost to adhere to HMRC’s filing criteria.
General tips for small businesses to keep the Inspectors at bay:
- Ensure that all accounting records are accurate and kept up to date along with supporting documentation.
- Submit all relevant corporation tax documentation and make payment of corporation tax to HMRC in a timely manner.
- Comply fully with PAYE & VAT regulations, including making full and timely payments of taxes as they fall due.
- Ensure that your corporation tax documentation contains a substantial level of tax disclosure, i.e. answer the questions HMRC would raise before they can ask the question.
- Respond as soon as possible to all correspondence from HMRC– if you cannot meet the deadline; make sure you keep in touch with them and explain why you need more time.
- Remember the Inspectors are human at the end of the day, and if you have genuine reasons for default of the submission and/or payment it is better to discuss with them in person rather than waiting for them to knock on your door.
Author
Peter Owen, ECOVIS Wingrave Yeats, London, peter.owen@ecovis.com
Chancellor Osborne has made a joint statement with the German finance minister Wolfgang Schäuble at the G20 summit in Mexico calling for co-operation to reduce corporation tax opportunities which currently exist for the likes of Google, Amazon, Starbucks and Pfizer, who have been reported to pay between 0 and 2.5% UK corporation tax. However going after the ‘big corporates’ is likely to be a long and drawn out affair, whilst a ‘short term fix’ to the problem would be to target smaller businesses.
It has been estimated that the UK tax gap for the year 2010/11 stood at £32bn, which is a billion pound increase from the previous financial year. It is hardly surprising that the Government has allocated £917m to tackling the problem, and HMRC’s Chief Executive, Lin Homer, has voiced her opinion, “to support the honest majority and to crack down on evasion, avoidance and fraud … We are determined to do more and we are devoting increasing resources to pursuing those who do not pay the tax they owe.”
One of HMRC’s new initiatives is the use of the social media portal Twitter. ‘@hmrcgovuk’ was initially set up to remind taxpayers about their impending deadlines, but HMRC have amended the application so that individuals can tweet numerous types of information. This includes the opportunity to report tax-evading activities in local neighbourhoods. A simple tweet may eventually lead to an Inspector knocking on the door of an unsuspecting small business.
Leaving social media aside, HMRC can generate compliance checks on a company at any time by virtue of iXBRL tagging. Even an out of place figure on a tax return would give reasonable grounds for the tax inspector to pay a visit to a small business. In these threatening times, how should companies mitigate the chances of an unwanted encounter with HMRC? First and foremost, they should ensure all records are kept accurately and are up to date. Filing tax returns with sufficient levels of disclosure and on time is a good indication to HMRC that your business is doing its upmost to adhere to HMRC’s filing criteria.
General tips for small businesses to keep the Inspectors at bay:
- Ensure that all accounting records are accurate and kept up to date along with supporting documentation.
- Submit all relevant corporation tax documentation and make payment of corporation tax to HMRC in a timely manner.
- Comply fully with PAYE & VAT regulations, including making full and timely payments of taxes as they fall due.
- Ensure that your corporation tax documentation contains a substantial level of tax disclosure, i.e. answer the questions HMRC would raise before they can ask the question.
- Respond as soon as possible to all correspondence from HMRC– if you cannot meet the deadline; make sure you keep in touch with them and explain why you need more time.
- Remember the Inspectors are human at the end of the day, and if you have genuine reasons for default of the submission and/or payment it is better to discuss with them in person rather than waiting for them to knock on your door.
Author
Peter Owen, ECOVIS Wingrave Yeats, London, peter.owen@ecovis.com
