Now small firms are targeted by taxman: After the sweetheart deals with big business, HMRC plans checks and £3,000 fines for missing paperwork

Tax inspectors are threatening tens of thousands of small firms with fines if they fail spot checks on their paperwork.

The HM Revenue & Customs crackdown comes despite a Government pledge to cut red tape and regulation for small businesses.

There has also been controversy over claims that inspectors have let large firms such as Goldman Sachs and Vodafone off millions of pounds in tax.

Criticism: Conservative MP Priti Patel accused HMRC of harassment and said the attitude of HMRC to small businesses was 'disgraceful'

Tory MPs say the proposed blitz on small firms is a disgrace and must be dropped.

HMRC has been piloting the ‘business record checks’ in eight areas. Inspectors trawl through company paperwork dating back several years looking for what they deem to be inadequate proof of expenses and income.

Firms found to have failed to keep or preserve records ‘in real time’ can be fined up to £3,000. The pilot projects suggest that around 12 per cent of firms would fail the audit.

Under the HMRC’s plans to expand the checks, as many as 20,000 small businesses will face demands to show receipts for income and expenditure. Those who are unable to do so will face penalties, which business leaders warn could push some into bankruptcy and hit the economic recovery.

John Walker, national chairman of the Federation of Small Businesses, said: ‘Despite the worsening economy HMRC are launching this scheme regardless of the consequences.

Tax inspectors are threatening tens of thousands of small firms with fines if they fail spot checks on their paperwork

‘We have spoken to HMRC and expressed our concerns about this a number of times. But as far as they and ministers are concerned it is an absolute policy aim to make this happen.

‘There is a huge difference between the rhetoric of the Government about helping small businesses and what they’re doing in reality.’

Tory backbenchers are also demanding a U-turn – claiming small firms are being treated more harshly than multinationals. A damning report from MPs last month claimed Britain’s biggest firms owe the taxman up to £25.5billion, but are regularly let off the hook. HMRC fiercely denies this.

The public accounts committee accused tax authorities of having a ‘far too cosy’ relationship with corporate giants, who are repeatedly allowed to cut their tax bills or avoid paying interest.

Conservative MP Priti Patel accused HMRC of harassment, adding: ‘The attitude of HMRC to small businesses is frankly disgraceful at a time when they are blatantly doing deals with large firms which have allowed them to escape millions of pounds in tax liabilities. At a time when small businesses need all the help they can get, the attitude of HMRC seems completely counterproductive.

‘Instead of persecuting small firms, they should ditch this entire project and start working with them to support them in whatever way they can at a moment of economic difficulty.’

Labour business spokesman Chuka Umunna said there are real concerns over the way HMRC has reached settlements with some large firms

Anne-Marie Morris, Tory MP for Newton Abbot and a member of an all-party group on micro-businesses, said: ‘Very small businesses are being treated in the same way as larger ones with better resources.

‘It is simply not practical for a company employing just a few people to spend huge sections of their day on administration as well as getting their firm off the ground.’

Labour business spokesman Chuka Umunna said: ‘As the public accounts committee has highlighted recently, there are real concerns over the way HMRC has reached settlements with some large firms, as well as the accountability and transparency of its decision making.

‘The committee said that HMRC has left itself open to suspicion that relationships with some companies are too cosy and that small firms had not been given the same service as larger firms. These concerns must be addressed immediately to restore trust.

‘It is crucial that HMRC acts in a fair and proportionate way with both large and small firms, particularly given the pressures which many businesses are facing at present.

‘It needs to work alongside small firms, most of which do not have a dedicated finance officer, in helping ensure they meet their tax obligations in full.’

HMRC sources said the plans would be subject to a review and insisted fines would be applied only in the most extreme cases. But they warned 40 per cent of small firms were not keeping adequate records, contributing to inaccurate tax returns.

A spokesman said: ‘HMRC recognises the launch of the BRC pilots has caused considerable concern to the tax profession, and that the project would have benefited from more detailed consultation with tax professionals at an earlier stage.

‘In the light of these concerns, HMRC will undertake a strategic review of the project, in consultation with the professional and representative bodies.

‘In the meantime, HMRC will continue with a limited number of BRC pilots, and the results of them will be evaluated as part of the review.’

Last week it emerged that nearly two thirds of fines issued by HM Revenue & Customs in 2011 to businesses in relation to VAT issues were found to be incorrect on appeal. It raised fears that thousands more taxpayers have been unjustly penalised but have not had the resources to challenge the decisions.


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