According to a new study by Pinsent Masons, HMRC raised £16 for every £1 it spent on staff on tax investigations looking at small businesses and individuals.
The figures show that HMRC were able to collect £4.9bn in additional tax from investigations into individuals and small businesses in 2018-19, but they only had to spend £309m on staff to achieve that – meaning they made £15.85 for every £1 spent.
For the purposes of this data, small businesses are those with fewer than 20 employees and annual turnover of under £10m.
Steven Porter, partner at Pinsent Masons, said: ‘For HMRC, this is an outstanding result. These returns will spur HMRC on to do more – taxpayers can therefore expect more attention and more investigations.
‘Individuals and small businesses are more vulnerable to tax investigations as they are less likely to have access to advisers who can shut HMRC down.’
A key areas of focus was self assessment tax returns and if they identify a mistake on a tax return, then it may decide to carry out checks of tax returns filed in previous years as well, increasing the chances that it will find further mistakes and claw back even more unpaid tax.
HMRC can now find out more than ever about tax payers (see here) and this data led approach is proving very successful for them.
So what does this mean for HMRC?
Well it means they have a real incentive to spend more time and resources on investigating smaller businesses as it literally pays for itself and then some.
What does it mean for small businesses and individuals?
It means now more than ever that they need to make sure their tax affairs are taken care of and are all up to date. If HMRC come to inspect, they need to ensure that everything is in good order, and that means dedicating time and resources to getting it done, and getting help from bookkeepers and accountants if necessary.