More tax investigations for small businesses

More than one in ten (12 per cent) of SMEs in the UK have been subject to a tax investigation in the last 12 months, according to NOP research released last week conducted for the Tenon Forum. This includes investigations of either their business or themselves and has increased by a third on the November 2003 figure of nine per cent.

Phil Berwick, Director of Tax Investigations at Tenon, comments:

"HM Revenue and Customs (HMRC) is putting an increasing amount of resource into compliance. Inspectors are aware of the tax problems that can exist in SMEs and are paying more attention to this sector. Dealing with an HMRC investigation, whether into PAYE matters or the company’s accounts, can be disruptive and a distraction from running the business. Careful handling by experienced advisers is essential, to minimise the distress and inconvenience that an investigation can cause."

Ten per cent of SMEs in the construction sector have been investigated in the last year compared with 19 per cent in the agriculture, mining & fishing sector. In November 2003, when SMEs were last surveyed on this question, only four per cent of SMEs in the manufacturing sector had been investigated in the previous 12 months in contrast with 21 per cent in the transport & communications sector.

At 16 per cent, SMEs in London and the South East/East of England report the highest figure of investigations in the last 12 months, closely followed by businesses in Scotland (14 per cent) and the North East/West (13 per cent). Only seven per cent of SMEs in the West and East Midlands have been investigated over this period.

Tenon Forum member John Pragnell, Managing Director of Camtec Electronics based in the East Midlands, comments:

"We've recently been investigated by the Inland Revenue, but unlike many businesses it didn't cause us too many problems. Careful planning, with our advisers Tenon, in advance of the investigation helped considerably in ensuring that this was a relatively hassle-free episode. Tax investigations are an inevitability which cannot be avoided; being prepared saved us from facing undue concerns during what could have been a very stressful time."

Businesses with a 1-5 million turnover were more likely to have been investigated (23 per cent) than those with an annual turnover of up to one million (eight per cent), 6-20 million (18 per cent) or more than 20 million (11 per cent). Age of business was not a significant factor in determining likelihood of investigation.