TAX NEWS - June 2010

UK Tax: Tax evasion clampdown could ensnare innocent SMEs, warns entrepreneur

HMRC has announced plans to seize a further £4bn in revenue that could leave blameless businesses facing unnecessary probes into their dealings, an entrepreneur has warned.

Acting on a Liberal Democrat manifesto pledge to clamp down on tax avoidance, the tax authority has targeted an ambitious £16bn, a 33% increase on last year's tax receipts.

Quentin Pain, founder of accountancy software company Accountz, says the deficit will ensure there is no let up from the HMRC.

"The increased target has been set after pressure from the Liberal Democrats who believe some businesses are escaping their full tax responsibility," he says. "£4bn more in tax is a massive increase that shows how urgently the budget deficit needs to reduced. To achieve such an extreme target HMRC will be forced to come down hard on tax avoidance and evasion."

HMRC will need to widen the scope of its work to include marginal cases, which raises the risk innocent businesses being penalised, warns Pain.

"HMRC's risk profiling is already far from being perfect, with many enquiries yielding very little or no additional tax at all, so how will HMRC improve risk profiling in order to better avoid causing detriment to innocent taxpayers? Tax investigations can be hugely costly to businesses and taxpayers alike."

Pain warns businesses that HMRC might interpret new inspection powers might be interpreted by inspectors in such a way that they demand private bank statements and records at the start of their enquiries.

"However," Quentin adds, "organisations need to be fully aware this practice is meant to be used only in cases where business records have been deemed 'unreliable'.

"In theory, the new powers bequeathed to HMRC could be seen as a step forward in the quest for increased efficiency in the inspection process. However, it could be argued that this will largely be down to how the rules are interpreted by individual inspectors."

"It is therefore vital that companies ensure that such inspections are carried out properly within the law and that their rights are not violated."

Business owners should be aware, adds Pain, even with the introduction of deferred tax payments that all tax liabilities will still need to be paid, albeit over longer and more manageable timescale, in addition to meeting all current and ongoing obligations as and when they are due.

Pain warns that: "Set against this backdrop we are also seeing a sharp increase in disqualification proceedings launched against company directors for failure to pay tax which undermines HMRC's insistence that it is taking a more sympathetic approach to businesses facing cash flow problems."

There has been a 24% rise in the number of directors facing disqualification proceedings for not paying company tax, according to Syscap, the UK's leading independent provider of IT finance and leasing. More than 800 company directors were banned this past year, 150 more than the year before.

Quentin suggest that "to reduce the tax burden small businesses can focus on technology solutions for their enterprises, to help them keep track of their cash and tax liabilities. After all, as HMRC states itself 'tax does not need to be taxing.