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Would you evade tax if you thought you’d get away with it?

Would you evade tax if you thought you’d get away with it?

New research has estimated that 7% of SMEs deliberately evade tax and more than one in three small enterprises would willingly understate profits if they believed they would not get caught.

HMRC is about to launch a new assault on small businesses it believes are evading taxes. The Revenue believes that small enterprises are responsible for the around 50% of the annual tax gap – the difference between what it collects and what it thinks it should collect.

HMRC’s research shows that around 35% of the 4.8 million small businesses in the UK are “attitudinally non-compliant”. These firms are likely to take a casual attitude towards record keeping and believe that tax evasion was acceptable. The study also discovered that out of every five firms that are tempted to break the rules, one would actually do so.

However, small businesses could well be concerned if HMRC inspectors are working on the assumption that a large number of taxpayers want to cheat.

The Revenue on the other hand says its compliance policy aims to encourage taxpayers to get it right. The director-general of business tax, Melanie Dawes, pointed out that 93% of SMEs are not evading tax and the department wants to support honest firms by reducing administrative burdens.

The most common forms of evasion amongst SMEs include failure to record some transactions in the books and not deducting NICs and tax from employees’ pay.

Inspectors are due to start visiting small companies in the second half of this year to check their records. Fines will be levied on firms with significant record-keeping failures.

HMRC is also going to crack down on companies that should be VAT registered, but aren’t. The current threshold for VAT registration is £71,000.

The government earmarked £900 million to help HMRC crack down on tax avoidance and evasion and more than half of this money is being targeted at the small business sector.

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Image: Hiding by gfpeck

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