Most of the additional UK value-added tax (VAT) brought in during the last three years came as a result of HM Revenue and Customs placing increased pressure on small businesses, according to PfP, a tax investigation insurance provider.
Kevin Igoe, managing director at PfP, said that a major HMRC crackdown on VAT abuse had led to a 32 percent jump in collections from VAT compliance actions last year, from GBP3.8bn (USD6.4bn) to GBP5.3bn.
Analyzing the figures, Igoe pointed out that HMRC’s local teams, which specialize in investigating small- and medium-sized firms, have increased the VAT take from their investigations by 70 percent in the last year, from GBP2.3bn to GBP3.9bn. HMRC has run campaigns targeting non-VAT-registered companies, self employed tradespersons, builders, medical professionals, restaurant owners, and landlords, among others.
Igoe believes that the VAT regime for small businesses has become harsher in recent years. “One of HMRC’s key weapons in its clampdown on VAT abuse has been using the ‘Connect’ computer system. Connect matches businesses and personal data from numerous sources with information from tax returns, identifying inconsistencies and flagging [up] whether a business’s likely actual sales don’t match up with their VAT payments.”
PfP is also warning accountancy firms to be prepared for HMRC to further ramp up its efforts to close the VAT gap. PfP pointed out that, in spite of recent efforts, the VAT gap grew by 25 percent in the year to April 2014, from GBP10.3bn to GBP12.9bn.
Igoe stressed that “even where there has been no intention of avoiding a VAT bill, retailers and sole traders could well be subjected to an investigation as HMRC aims to step up the level of VAT-related investigation activity.”