HMRC is recruiting an additional 670 compliance officers and targeting £1.5 billion from tax investigations over the next six years. This could mean greater scrutiny of small and owner-managed businesses as the tax authority looks beyond the “low-hanging fruit” for additional revenue.
Andrew Park, Tax Investigations Partner at Price Bailey, the chartered accountants, comments: "Additional investment in HMRC compliance can generate significant returns, but much of the low-hanging fruit has already been picked. We are already seeing signs of diminishing returns from some areas of HMRC’s offshore compliance work, so deploying additional officers effectively will be just as important as recruiting them.
“Small businesses are the obvious frontier. They now account for almost two thirds of the UK tax gap and we are already seeing an increase in HMRC enquiries into owner-managed businesses. With hundreds more compliance officers coming on stream, business owners should expect that scrutiny to intensify.
“For owner-managed businesses, an HMRC enquiry can extend beyond the company’s tax affairs into the position of its owners and directors. Businesses should make sure their tax affairs and records can withstand scrutiny before an enquiry begins, rather than trying to resolve weaknesses once HMRC starts asking questions."
HMRC is also set to receive automatic information on overseas properties owned by UK taxpayers, making it easier to identify undeclared rental income and capital gains.
Andrew adds: "Automatic exchange of property information will close another significant gap in HMRC's visibility of UK taxpayers' overseas affairs. Offshore bank accounts have become increasingly transparent to tax authorities, but property is a much less mobile asset and historically information about overseas ownership and rental income has been harder for HMRC to obtain.
“This could be particularly relevant to UK taxpayers who own second homes or investment properties overseas and receive rental income from them. Once automatic exchanges begin, HMRC will have another source of third-party information against which it can check what taxpayers have reported in the UK.
The important change is HMRC's ability to identify discrepancies automatically rather than having to discover an overseas property through an individual investigation. Anyone with previously undeclared overseas property income or gains would be well advised to put their affairs in order before information starts flowing automatically."
