HMRC investigations into SMEs raised an additional £489m in corporation tax last year (2014/15) according to UHY Hacker Young.
The Top 50 firm says the extra yield shows that the taxman has ramped up its probes into ‘soft target’ small businesses in a bid to slash the corporation tax gap – the amount of theoretical tax that should be collected by HMRC, against what is actually amassed.
SMEs’ share of the corporation tax gap has now contracted from £2.1bn (11%) in 2012/13 to £1.4bn (7%) in 2013/14, while the same gap for ‘large business service‘ stayed at £1bn (5%) across the same timeline.
Roy Maugham, partner at UHY Hacker Young said: “HMRC appears to be aggressively going after small businesses as ‘easy pickings’ and it’s possible they will look to accelerate investigations next year and beyond to further close the gap, rather than going after big enterprise.”
“The substantial closing of the tax gap for SMEs and non-movement by bigger companies is a clear demonstration of the increased pressure by HMRC on SME to fill the shortfall. Whilst small businesses are being increasingly pursued, large companies such as Facebook, Amazon and Starbucks are seen to be ‘getting away with’ paying disproportionally small amounts of Corporation Tax.
“Understandably, the public is increasingly frustrated about large companies failing to pay their fair share of Corporation Tax, whilst SMEs feel they are shouldering much of the tax burden by repeatedly coming under fire from HMRC.”
The unexpected nature of such enquiries meant that large, unforeseen tax bills often negatively impact on the short-term cash flows of small businesses, damaging expansion and growth plans, Maugham added.
The findings chime with the announcement that Macquarie, the Australian part owner of Thames Water, which is putting up its 26%, £3bn stake, paid just £100,000 in corporation tax since 2006 by loading it with £11.4bn of loans to limit tax payments.
Some £1.6bn in dividends and interest has been amassed by the Australian bank and its associates during its ownership.
The ATT had previously expressed concern that the legislation was overly complex and created unnecessary complications within the practical working of the new allowances
Introduced in 2013 to encourage R&D investment, the scheme allows UK businesses to pay only 10% corporation tax on profits derived from any UK or certain EU patents
APNs are issued to individuals and businesses who are suspected of having engaged in tax avoidance, and require full payment of the disputed tax within 90 days
Yet, KPMG’s annual survey shows that the UK is still an attractive place to do business, despite falling in rankings in tax competitiveness and FDI appeal