Monthly Archives: April 2011

Spot checks by tax inspectors

HMRC inspectionI wonder if anyone you know has been the victim of these? Various business journals have been mentioning for some time that the Inland Revenue has decided to target small companies. On the belief that such businesses would have poor record keeping and so would be able to have more tax squeezed out of them.

It flies in the face of the government’s pledge to reduce the burden of red-tape and to encourage entrepreneurship, but the HMRC is a law onto itself. Literally. As long as they are effective in raising money, they seem to be able to make their own rules.

But is targeting 1000′s of small companies a cost effective exercise given the small payback for the amount of time needed to do such investigations? Probably not, so the major benefit must be thought to discourage abuse of the system and encourage SMEs to pay fully all tax.

Most small businesses I know though are not run by greedy Arthur Daleys, but by hard working owner managers, who try their best in filling out the endless Companies House, VAT, PAYE, National Insurance and annual returns forms, but inevitably may not tick all the boxes in the right place or have kept 6 years records.

If these entrepreneurs make a error they don’t realise it at the time, so the punitive measures mentioned above are not likely to cause a change of behaviour. It all seems a waste.

But today I received a letter from my accountants suggesting I take out insurance that would cover their costs in the event of a investigation by HMRC. I’m not sure if it is just a scare tactic in order to drum up commission from the insurance providers, or if it is another sign that these investigations are generally increasing. Certainly the cost of dealing with a tax inspection worries me more than the likely outcome.

Hmm, should I take the insurance or live to regret not doing so – a dilemma.