HMRC nets record sum of extra CGT and VAT

The taxman is sitting on two record hauls from his enquiries into small companies, with his yield from investigations of both Capital Gains Tax and VAT being greater than ever before.

In fact, the extra VAT take from small firms in the last year rose 10% to an unprecedented £3.6bn. Over that period, the extra CGT take from them surged 24% to a new high of £136m.

Accountants at UHY Hacker Young, who obtained the figures from HM Revenue & Customs, said each tax was being pursued more aggressively, as were enquiries and SMEs.

“Investigations into SMEs and individuals are now a focus of the organisation in a way that that was not the case in previous incarnations,” said Mark Giddens, a tax partner at UHY.

“We are seeing a more hard-nosed attitude in HMRC’s approach to investigations [and] with this sharper focus… enforcement cases are bringing in rising amounts of extra tax.”

With CGT, the accountant said that much of the extra yield was thanks to HMRC bearing down on property transactions by buy-to-let investors inexperienced at applying the tax.

Seeming to add another reason why the extra CGT from enquiries hit a high in 2013-14, he said total payments of it have fallen despite its rate being hiked in 2010 from 18% to 28% (for higher rate taxpayers).

The subtext is that, in light of less CGT in the coffers, HMRC has looked more closely at the beneficiaries of higher property profits and recovering stocks to ensure their capital gains are not being understated.

And with VAT, the department was said to have become “increasingly aggressive” with SMEs in challenging previously accepted VAT arrangements, in a bid to boost tax receipts.

UHY said: “More and more small businesses in particular are finding themselves facing investigation over VAT arrangements that have long been accepted by the tax authority.”

According to the firm, HMRC boosted the amount of extra VAT taken from SME investigations in 2010-11 (£2.2bn) by pursuing a range of different firms and sectors.

“Organisations as diverse as financial advisers, property development companies and sports clubs have all been targeted by HMRC,” said UHY’s Simon Newark.

“[Either] to challenge long-accepted VAT arrangements, or to impose what some businesses see as unrealistic burdens on them to claim back VAT.”

Elaborating on what he called HMRC adopting a “hard line” with small companies’ VAT, the adviser said the law was always weighted in the Revenue’s favour, even if its officers make a mistake.

“Once they make a decision it is irrelevant if the decision is right, wrong or even unlawful” he said. “Unless the taxpayer challenges it, the decision will be enforced”.

Editor's Note: Related Reading -

Contractor guide to VAT inspections ii) how to prepare

Taxman isn't keen on all forms of retrospection

Newly formed limited company hit with £10K fine

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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