Keep up with the taxman

PETER HARRUP of accountancy firm PKF reports on efforts by HM Revenue & Customs to collect an extra �7bn of tax a year by 2014/15

A STREAM of announcements from HM Revenue & Customs (HMRC) in recent months shows that it is sharpening up its act.

Despite high profile problems with tax codes and PAYE, it is increasing enforcement activities, working towards its target of collecting additional tax of �7billion each year by 2014/15.

HMRC is setting up 10 new “task forces” to tackle tax evasion, the first of which is targeting restaurants in London and then in other areas. The others will target specific “high risk trade sectors and locations across the UK”. If one of these cross-disciplinary teams visits your business, emergency tax and legal advice should be sought.

If you are behind with tax payments and have not applied for a “time to pay” agreement (now rather harder to obtain than before) you might receive a warning letter from HMRC. One example claims that HMRC could collect by “taking your possessions and auctioning them publicly”.

Of course, it is illegal for debt collectors to enter a person’s home and seize goods without a court order, but HMRC says such letters have helped it collect an additional �6bn in unpaid taxes in 18 months so it looks like they are here to stay.

Risk analysis carried out by HMRC seems to indicate that businesses with poor records usually underpay tax and it is now piloting business records checks across the country.

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Up to 1,200 SMEs will be approached about a meeting at their premises to check their records for the current tax year. The exercise will be rolled out fully in autumn 2011 with up to 50,000 SMEs checked annually and HMRC expects to collect an additional �600m over four years.

Although there will be no penalties under the pilot, when the full exercise commences, penalties will be charged where records are very poor – even if you are not behind with your tax returns. However, the main risk from a records check is that HMRC will identify mistakes, or worse, in your paperwork and and launch a tax investigation. Refusing a visit is likely to put you even higher up the risk list and to trigger formal enquiries later.

HMRC has also announced a summer campaign on VAT registration. It will identify individuals and businesses that have returned annual turnovers above, or very close to, the annual VAT registration threshold (currently �73,000) and check that they are VAT registered. It also seems that another tax disclosure facility (amnesty) may be run alongside this project just as the “plumbers tax safe plan” comes to an end.

While a sharp, efficient HMRC is good news for most of us, it does mean that businesses must have strong systems in place to keep up to date at all times. If you have fallen behind or there are errors that you need to put right, getting up to date now will save you time, worry and money in the long term.