Small business tax investigations yield £1.2bn in unpaid tax

February 22, 2020 - 2 minutes read

HMRC raises £16 for every £1 it spends on staff carrying out investigations into the tax affairs of individuals and small business tax investigations

Figures show HMRC collected £4.9bn in extra tax from investigations into individuals and small businesses in 2018-19, but only had to spend £309m on staff to achieve that.

This extra tax included £1.2bn from investigations into underpaid income tax.

HMRC’s individuals and small business compliance (ISBC) directorate manages the tax compliance of individuals and small businesses, which it classes as any company with fewer than 20 employees and an annual turnover below £10m.

While HMRC’s focus is primarily on large companies, the high level of returns it has received from investigations at the other end of the spectrum means it may consider investing more into staff targeting this taxpayer group.

For HMRC, this is an outstanding result. These returns will spur HMRC on to do more – taxpayers can therefore expect more attention and more investigations.

Individuals and small businesses are more vulnerable to tax investigations as they are less likely to have access to advisers who can shut HMRC down.

A key area of focus for HMRC when targeting individuals is self-assessment tax returns.

If HMRC identifies a mistake on a tax return, then it may conduct an audit of returns filed in previous years too, increasing the likelihood that it will find further mistakes.

HMRC has a range of new data sources and civil powers at its disposal which has also improved its ability to identify mistakes in recent years.

The department now receives data from over 100 tax authorities worldwide through the common reporting standard and can use production orders and a range of other powers to retrieve documents from a taxpayers’ accountants and lawyers.

HMRC’s data-led approach is proving incredibly effective, driving efficiency and ultimately boosting returns from investigations.