HMRC keeps its word and cuts number of SME inspections

The taxman has kept a promise to cut the number of inspections on small and medium-sized businesses as part of an effort to cut the administrative burden on SMEs.

In May last year, HM Revenue and Customs said it would reduce the time spent on auditing and inspecting small businesses owing less than £1,000 by 15% by March 2011.

An HMRC spokeswoman said last week that by the end of February, the department had spent 6% less time on compliance checks for those customers making small errors or no errors at all, compared to the same period a year earlier.

She said: ‘We are doing less checks overall, but we have also reduced the average amount of time we spend on these cases, particularly for the types of compliance check which we know businesses find the most burdensome.’

To help it prioritise tax inspections HMRC plans to introduce a ‘strategic risk analysis’ IT system, to help it identify ‘higher risk’ customers that are more likely to avoid tax or fail to meet other regulations.

Small business groups welcomed the move towards more targeted inspections. They had complained that the previous system of inspections often resulted in unnecessary tax inspections and was heavy handed.

Bill Knox, tax chairman of the Federation of Small Businesses, which has more than 215,000 members, said: ‘The announcement is good news for small businesses that find inspections from HMRC stressful and time consuming.

‘The FSB welcomes HMRC focusing in on businesses that are deliberately evading tax, as this reduces the pressure on those small businesses that get their tax returns right and do them on time.’

In 2007/08 HMRC said it completed 483,000 compliance checks, taking 7.6 weeks per case
on average.

SMEs want HMRC to be flexible in the way it deals with individual businesses, resolve disputes quickly, provide a consistent service and understand the needs of business, according to research by HMRC.