Don't be overly taxed by HMRC's scrutiny

Tax and, more particularly, the question of tax avoidance, has received unprecedented levels of attention in recent years.

In July’s Budget, it was announced that HM Revenue & Customs (HMRC) is to receive additional funding of £800 million over the next five years to help further crack down on tax evasion and avoidance, with an extra £300 million being specifically allocated to a crackdown on small and mid-sized businesses, public bodies and affluent individuals.

A range of specific measures were set out to tackle tax avoidance and non-compliance and continue the trend of widening the scope of HMRC’s powers. Some of the measures that may not have garnered as much attention in the press but could have a real practical impact going forward include:

• The ability of HMRC to recover tax debts of £1,000 or more directly from taxpayers bank and building society accounts
• The extension of HMRC’s powers to acquire data from online intermediaries and electronic payment providers (targeted at finding those operating in the hidden economy); and
• The announcement of a review of the rules underlying the tax treatment of travel and subsistence expenses.

In an industry that has already seen a lot of complex tax and regulatory changes in recent years, particularly in relation to outsourcing arrangements and the use of employment intermediaries, agencies and umbrella companies, there is unlikely to be any respite in the degree of scrutiny to which businesses operating in the transport and logistics sector are subject by HMRC.

HMRC is also increasingly using more sophisticated techniques and risk-based analysis models to target their resources effectively and focus their enquiries and audits towards “higher-risk taxpayers”. This has been facilitated by the increased use of online filing which enables data to be more easily interrogated and cross-referenced.

So what can businesses do to manage their risk? A lot of the steps are simple and a matter of common sense.

First and foremost, it is essential to have proper records and accounting systems. File your tax returns on time and ensure everything is disclosed and they are complete and accurate.

Variations and fluctuations in turnover and/or the cost base are likely to attract attention so explain the reason for any material changes.

Employment status continues to be a key target area so if your business uses consultants or self-employed workers make sure that both the contractual terms and, more importantly, the actual way in which their services are provided support this analysis. Simply having a contract stating someone is self-employed will not suffice.

Avoid aggressive tax schemes. If something looks too good to be true that’s usually because it is. Any arrangements whereby there is a tax deduction with no corresponding profit or  artificial steps with no real commercial purpose should be avoided. Tax is a cost and like any other should be managed but there should always be a commercial basis and underpinning for any transactions or structures that are put in place.

Finally, seek expert advice from a reputable tax adviser.

Haydn Rogan is a tax partner at law firm Weightmans

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