HMRC investigations cost small firms £18,400 on average

HMRC investigations cost small firms £18,400 on average
HMRC has increased the revenue it raises from investigations into small businesses and individuals to an average of £18,400 per investigation, research from accountants UHY Hacker Young has found. That’s up from £17,500 in 2021.
HMRC is looking to raise as much as possible from investigations as they seek to make up for revenue lost during the pandemic – an estimated £35bn in taxes went underpaid in 2019/20 alone, said Phil Kinzett-Evans, a Partner at the firm.
One area HMRC has focused on increasingly in recent years is income earned through residential property, he said, and it is likely HMRC will continue to scale up its activity in the property sector, having only recovered £17.7m in unpaid taxes through its Let Property Campaign in the past year.
Kinzett-Evans said: “HMRC is looking to squeeze as much money as they can from every investigation. Those who avoid tax are now facing larger penalties as HMRC looks to make up for income lost during the pandemic.”
HMRC will also be targeting those who have seen their wealth increase through cryptocurrency dealing.
Kinzett-Evans said: “Over the past 22 months retail trading and cryptocurrency speculation have boomed in popularity – there are concerns much of the income gains from these activities are going unreported. Those who fail to declare their profits may be actively pursued by HMRC and could potentially face substantial fines.”
Grants such as the Self-Employment Income Support Scheme and local restrictions support grant are taxable, and HMRC will be seeking to ensure no one has underreported income from those schemes.
Small businesses and individuals are often seen as easier targets for HMRC, as they do not have access to specialist legal and tax advice. Without professional support it is much more difficult to challenge an investigation, said Kinzett-Evans.
HMRC may look for irregularities in a business’s tax returns, such as when a business which works in a cash heavy sector reports low income from cash in its declarations. If HMRC finds a discrepancy it may lead to an investigation, which could mean a substantial fine or worse, he said.