There is of course only one answer… us. The taxpayer!
HMRC is under increased pressure to be more efficient in collecting what is due.
Their latest analysis of the shortfall in taxes collected, highlighted that small and medium-sized enterprises (SMEs) are responsible for the majority. Further analysis shows that the biggest loss comes not from fraudulent activities but instead from carelessness in data processing and interpretation of legislation.
It is not difficult to see where HMRC will concentrate their efforts. They will of course continue to pursue criminal activity and large companies using complicated tax avoidance schemes; but these are time consuming and expensive.
Not only will HMRC collect the tax that is owed, they will charge interest from the original due date until it is paid and a penalty varying from Nil to 200%. Something not to be caught out on.
Their likely policy will be zero tolerance for non-compliance and ignorance will not be an accepted excuse.
If your records are maintained accurately and error free there is of course nothing to worry about apart from the time taken to deal with HMRC. However, if you, as with many other SMEs find that your records and systems lack completeness or are over-complicated, the chances are more errors are likely to be made and you may find yourself at the end of a HMRC enquiry.
To encourage better compliance the penalties for errors can be reduced to nil if reasonable care was taken when or where the error was the result of careless behaviour and an unprompted disclosure is made to HMRC. Meaning if you or your accountant spot it first, there is more chance of fixing it and therefore avoiding the penalty.
Don’t wait for the Letter from HMRC to arrive before panicking to sort your business out.
Part of your routine should be to ask for advice regarding the tax and VAT treatment of transactions. Often the tax treatment appears to defy logic and one transaction may be allowable while a similar one is not. Processing the transaction in the correct way at the outset can save tax.
A detailed audit of all transaction will be time consuming. A useful alternative that can be used for VAT returns is to have a sanity check of the detailed return before it is submitted. Checks will be made for completeness, reasonability and unusual items reviewed in detail to ensure the treatment is correct.
Think of it as a health check on your system; the aim to making each submission as painless as possible. There are other ways of streamlining and simplifying your processes and documentation such as going digital, whether this be by automating the documentation or expenses and mileage.
The key takeaway is businesses should start now to ensure their bookkeeping systems are robust to eliminate the risk of simple errors.
Reaching out now for advice will prevent the rush later on.