'Rogue SMEs' raising your risk of VAT investigation

A few bad apples are spoiling the barrel when it comes to small companies complying with VAT, the underpayment of which has netted the taxman an extra £3.5billion in the last year.

In fact, a “small number of rogue SMEs” attempting to evade VAT is placing reputable firms “in the firing line” when they make innocent mistakes on their returns, warns tax adviser PfP.

But HMRC’s scrutiny of all firms is set to increase, as the recent closure of 170 tax offices was made in favour of getting specialist taskforces to carry out tax-related investigations.

Already though, VAT probes “represent a rich seam for HMRC”, says PfP’s Kevin Igoe, partly as abuse of VAT by SMEs in the past makes HMRC “pay particular attention” today.

But he says now the issue is that a “hardcore” of tax-evading traders are making life difficult for the law-abiding SMEs, leaving them at risk of being investigated for a genuine oversight.

“Through no fault of their own, a lot of small businesses are coming under greater scrutiny, and facing expensive and time-consuming investigations,” PfP said.

“It is easy for small businesses to trip up when it comes to filing VAT returns and HMRC is constantly sharpening its senses to catch them out when this happens.”

Companies were advised to be wary of the potential pitfalls when submitting VAT returns to HMRC, and were urged to be “on top of their accounts at all times.”

In line with the warnings, figures show that extra VAT revenue accounted for almost half (45%) of the additional tax take in 2014/15 from investigations by local compliance teams.

Such HMRC teams, which are responsible for probing small and medium-sized businesses, last year raised a total of £7.7billion from local tax investigations.