Contractor VAT investigations proving profitable for HMRC

Underpayment of VAT has been identified as one of the reasons that small businesses, including limited company contractors, have come under scrutiny by HM Revenue and Customs. Experts believe that attempts on the part of a small minority of SMEs to evade VAT are causing those who make honest mistakes to be penalised beyond the degree to which they otherwise would.

These ‘rogue SMEs’ could be behind the recent move towards cracking down on all businesses, as the recent closure of 170 tax offices has been precipitated by the engagement of specialist taskforces who will be conducting investigations into the tax affairs of a number of firms in the UK.

VAT investigations already account for a significant proportion of the income the department receives, and past VAT abuse of the system on the part of SMEs has caused HMRC to be particularly vigilant.

However, those who make genuine mistakes are getting caught up by measures designed to target the hardcore of traders who are deliberately intending to evade their VAT liabilities. This can result in time consuming and costly investigations being carried out on businesses who have no intention of escaping their responsibilities and are victims of undue suspicion on the part of HMRC.

Small businesses are likely to make minor errors when filing their VAT returns, and HMRC are always on the look-out for ways to ensure that these mistakes are picked up swiftly and effectively. Although the department urges all businesses to be vigilant about their finances, they are also unable to deny that the tax take from the extra VAT revenue, which accounted for around 45 per cent of the extra tax take in 2014/15, is a welcome addition to their coffers.

Local compliance teams, who bear responsibility for conducting investigations into small and medium sized businesses raised a total of £7.7 billion from their work last year, so the taxman is making a significant sum from pursuing these anomalous returns, whether they are deliberate or not.

If you find the whole issue of VAT confusing and want to know more about how to stay compliant, then our guide to VAT basics is invaluable. If you want to know more about any aspect of contractor tax then we can help, not to mention our handy guide to choosing and using a contractor accountant.

If you want someone to take all the stress out of dealing with your finances, from VAT to pension planning and everything else as well, then our specialist accountants are always on hand to offer advice, support and help with anything that you need. Call today to learn more on 01442 275789 or email newbusiness@sjdaccountancy.com.

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