HMRC sets its sights on SMEs over UK tax gap
The tax gap in the UK – the difference between the amount of tax owed and the amount that has been paid – remains wider than anticipated due to SMEs, according to HM Revenue & Customs (HMRC).
The tax authority’s figures for 2021/22 show that small and medium-sized enterprises (SMEs) contribute significantly to the national tax gap, with 56 per cent (£20.2 billion) of the total gap (£36 billion) accounted for by underpayments or non-payments by these businesses.
HMRC attributes much of this gap to careless errors made by SMEs, which is why ensuring compliance can help to narrow this gap and prevent SMEs from being hit by easily avoidable tax penalties and investigations.
Understanding tax obligations
Businesses need to have expert knowledge of the different taxes they are liable for. These include Corporation Tax, VAT, Income Tax and National Insurance Contributions via PAYE.
According to HMRC, Corporation Tax, Income Tax, National Insurance Contributions and Capital Gains Tax together account for 65 per cent of the total tax gap.
Organisation and meeting deadlines
SMEs need to remain organised and keep meticulous records of all financial transactions. A lack of sufficient care was responsible for almost a third (30 per cent) of all underpayments of tax.
It seems an obvious observation but ensuring that all tax returns and payments are submitted by the relevant deadlines will mean SMEs avoid penalties for late submission.
Delays in payment or submission can also increase the chances of errors as a last-minute rush often leads to carelessness.
Stay up to date with tax laws and changes
Tax laws are subject to change and being unfamiliar with any updates could lead to errors in your tax reporting that result in penalties, fines and investigations.
SMEs should ensure that they are up to date with the latest changes in tax laws, rates, and deadlines.
Maintain good communication with HMRC
If SMEs do find themselves to be in a position where they’re unable to pay their taxes on time, they should reach out to HMRC and explain the situation. They might be able to offer a payment plan or provide other solutions.
With HMRC intensifying its focus on non-compliance by small businesses, SMEs must pay close attention to their tax obligations.
If you are an SME business owner and would like assistance with your tax obligations, our expert team of tax professionals are here to help.
