VAT accounts for 50 per cent of all HMRC investigation revenue, figures show

HM Revenue & Customs (HMRC) raises almost half of its tax investigation revenue through VAT probes, a new report has revealed.

The research, published by specialist insurer PfP, estimates that the tax office collected an additional £3.75 billion from small and medium-sized enterprises (SMEs) through investigations into underpayment of VAT in 2017/18.

The figure represents a 12 per cent rise compared to the year previous, indicating that tax officials are using the full force of their powers to pursue companies that deliberately underpay tax.

The report comes as official figures show that VAT receipts hit a record £125 billion last year, up 60 per cent from £78 billion a decade ago.

PfP, which provides fee protection insurance to help cover the cost of tax investigations, said VAT is becoming an increasingly important revenue stream for the Treasury, and as a result, it is keen to use its powers to clamp down on the potential underpayment.

Commenting on the report, Kevin Igoe, managing director at PfP, said: “HMRC is clearly finding VAT investigations into SMEs fruitful so businesses can expect more of the same over the coming year.

“VAT has become a large component of total receipts so we will likely see HMRC bulking out its compliance teams to ensure that it squeezes as much as it can from businesses in this area.”

Mr Igoe added: “Investigations really take their toll on small businesses as managers get sucked in at the expense of day-to-day management and strategic planning. Investigations can also substantially increase legal spend, using up resources that may have been earmarked for elsewhere.”

If you require advice, Glazers Chartered Accountants is able to provide a full and comprehensive VAT consultancy and planning service. With the help of our expert accountants, business owners can be confident that they are paying exactly what they owe and are protected in the event of a tax investigation.