The taxman collected an extra £4.4bn from small and mid-sized businesses through investigations into the underpayment of VAT last year, up 18 per cent from £3.8bn collected in 2017-18.
Over £1.7bn was collected from VAT investigations into small businesses alone last year, according to tax investigation insurance firm PFP.
PFP said the growth in the “VAT gap” has resulted in HMRC becoming increasingly aggressive in pursuing underpaid VAT.
The VAT gap represents the difference between what HMRC thinks it should receive and what it actually collects.
It hit a record high in 2017-18 of £12.5bn, up 13 per cent from £11.1bn the previous year.
Cash-based small and medium enterprises have traditionally been the focus of HMRC’s VAT investigations as they are deemed a higher risk for underpayment.
HMRC has specialist teams looking at cash-bassed industries including teams looking at fast food outlets in London and taxi firms in Yorkshire and the east midlands.
HMRC is also trying to crack down on VAT evasion by online retailers and is working with Amazon and Ebay to persuade online sellers to become VAT-registered.
Kevin Igoe, managing director at PFP, said: “HMRC is keen to protect the golden goose and will come down hard on any trader it deems to be underpaying VAT.
“HMRC also now has a much better grip online in terms of who is and is not paying VAT through its partnership with online platforms. HMRC’s reach should not be underestimated.”
An HMRC spokesperson said: “We want to get tax right for everyone so that all taxpayers, no matter who they are, pay the right amount of tax at the right time.”
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