Tax return

The HMRC's crackdown on small and mid-sized businesses brought in £468m in extra tax last year, finds UHY Hacker Young. Do algorithms provide the answer for SMEs?

"It could be because large businesses are often better resourced and able to employ in-house tax specialists," speculates UHY Hacker Young.

It says that large businesses "can close down or limit HMRC’s investigations when its approach gets unnecessarily aggressive. Smaller businesses are often unable to do the same, and may therefore prove to be a more profitable target for HMRC."

On the other hand, small and mid-sized businesses could be affected by time and budgetary constraints, or a lack of financial experience when it comes to self-assessing their tax affairs, which could make them more prone to errors when it comes to their tax affairs.

But is it fair? Is there one rule for big businesses and quite a different rule for smaller companies?

Lee Murphy, Owner of accountancy software Pandle says: "When it comes to taxing SMEs there does need to be some balance. HMRC has to obtain the correct tax, though this shouldn’t disrupt SMEs more than needs be, it could put them at a disadvantage.

"Algorithms can provide a good solution for identifying individuals and small businesses who are not paying the right amount of tax. However, there should be some assurance penalties won’t be too harsh for a first offender.

"Perhaps HMRC should warn SMEs if they are under the spotlight so that a business knows it needs to prepare for possible investigation. Following that there could be stricter penalties if an SME repeat offends. But a warning could give small enterprises a chance to get things in order first.”