Small businesses in the crosshairs

Since 2010, there has been a year-on-year rise in the total numbers of investigations that HM Revenue & Customs open.

However, in the wake of Covid, there has been an especially large rise in investigations into sole traders and small businesses, 17% between 2020/21 to 2022/23¹.

Why are HMRC targeting small businesses and small traders?

The larger an organisation, the more likely they are to have an in-house tax function carefully overseeing tax planning and compliance. This makes it less likely that errors arise and more likely that the business will fight back against HMRC hard enough and for long enough that they end up in a position where they can negotiate. This makes targeting larger businesses less lucrative for the exchequer.

Small businesses may also be less likely to afford specialist support and keener to settle an enquiry quickly, even against their own interests. Avoiding the professional fees in an enquiry can very often be a false economy and end up costing far more in the long run.

HMRC also may open enquiries randomly and there are a far greater number of small businesses which makes them more likely to be on the receiving end. Even if you’re certain your returns are up to scratch, an investigation is always a possibility. In fact, over 30% of enquiries end with no additional tax due².

What impact will an enquiry have?

Enquiries can last a considerable amount of time, often extending to several years. Over this period, HMRC will be asking for documentation and information which can be a considerable drain on a small business’s staff and owners.

How can I mitigate the risk?

To fully support you, Kreston Reeves has a dedicated team of Tax Disputes and Risk Management specialists who have significant experience in handling all types of HMRC investigations. We will provide an impartial, and clear way through, keeping you one step ahead.

In addition, our tax investigation service will cover professional fees that result from most types of HMRC enquiry or investigation. Unlike some fee protection products that appoint their own advisers, this policy ensures that we can represent you throughout. We believe that we know your business best and we want to be there for you when you need us most.

 If you would like further information, please get in touch.

1. HMRC. (2021). Annual Report and Accounts 2020 to 2021. [Online]. P49. Available at: HMRC Annual Report and Accounts 2020 to 2021 (Web) (publishing.service.gov.uk)

 HMRC. (2023). Annual report and accounts 2022 to 2023. [Online]. P19. Available at: HMRC annual report and accounts 2022 to 2023 (publishing.service.gov.uk)

2. Tax investigation service presentation, PFP, Kevin Igoe CTA – January 2023