SMEs Hit Hard by HMRC’s Clampdown on Taxes

Newly revealed statistics by UHY Hacker Young – a national group of business advisors and accountants – show that SMEs (Small-Medium Enterprises) are paying “disproportionately high levels in additional taxes” and are being hit hard by HMRC’s payroll mistake focus.

Although SMEs account for only 11% of total UK payroll, they are actually paying more in additional payroll taxes and penalties altogether than larger companies by nearly £10m.

UHY attribute this phenomenon to the tendency in small businesses to employ casual labour, a flexible workforce and umbrella company operation.

A survey carried out by P2P lender MarketInvoice that was released in March revealed that 75% of small business directors have the view that the UK government favours big firms over smaller ones.

Furthermore, previous statistics from UHY Hacker Young showing that throughout 2015, tax authorities collected £500m more from small firms as a result of investigations than the previous year.

When we compare this to the figures for larger businesses, who experienced a 13% decrease in payments from tax investigations in 2015, the view of SME leaders is perhaps unsurprising.

Roy Maugham, tax partner at UHY Hacker Young, commented:

‘Much of the underpaid tax (which incurs penalties) is due to genuine errors. This strongly suggests the government needs to simplify its system to help SMEs avoid mistakes.
Those employing flexible workforces or operating as umbrella companies, for example, might find it difficult to determine which ‘box’ their labour force falls into when it comes to paying tax.’

In their recently released report, UHY suggested that small business owners are less likely to seek advice on tax issues, which explains why they are more likely to make mistakes when filing employer compliance tax returns.

Umbrella companies are those that hire outsourced staff on a fixed-term basis, which is a cheaper alternative for SMEs, while causing problems with payroll tax.

Maugham added: “Investigations can be extremely disruptive to SMEs – as well as expensive. While some may be actively looking to avoid paying tax, in their vast majority, SMEs will simply be tripping up on a complex tax system”.

According to chancellor George Osbourne’s Budget 2016 speech, however, there are changes ahead that should start to tackle these problems.

He announced that there would be 3 main areas for HMRC improvement:

• Seven-day service – This means that people and businesses will have more of an opportunity to speak to someone from HMRC outside of working hours, and will come into force in 2017.
• 800 new recruits – These staff will be employed at HMRC call centres to reduce waiting times.
• Dedicated phone line and online forum – These are specifically for new businesses and self-employed people, with the intention of supporting the filing and paying of taxes for the first time.

The message is that if you are unsure at all when filing your tax returns, ensure that you seek advice from HMRC immediately – if you are stung with penalties from HMRC, you will not be able to sweep them under the rug and forget about them.

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