HMRC has increased its take from investigations into individuals and small businesses to an average of £18,400 per investigation, up from £17,500 last year, according to new data shared with City A.M. this morning.
HMRC is looking to extract as much as they can from investigations as they seek to make up for revenue lost during the pandemic, said accountancy group UHY Hacker Young.
HMRC believes £35bn in taxes went underpaid in 2019/20 alone, the firm said.
With such a substantial sum of tax underpaid, and having spent extraordinary amounts in the last two years, £60.7bn on the furlough scheme alone, HMRC will be looking to step up their compliance activity to recoup as much as possible.
One area HMRC has focused on increasingly in recent years is income earned through residential property.
It is likely HMRC will continue to scale up its activity in the property sector, having only recovered £17.7m in unpaid taxes through its Let Property Campaign in the last year.
Many of next year’s investigations by HMRC may be related to Covid grants, specifically those small businesses and individuals who did not report receiving these funds on their tax returns.
Grants such as the Self-Employment Income Support Scheme and local restrictions support grant are taxable, and HMRC will be seeking to ensure no-one has underreported income from those schemes.
Small businesses and individuals are often seen as easier targets for HMRC, as they do not have access to specialist legal and tax advice. Without professional support it is much more difficult to challenge an investigation.
HMRC may look for irregularities in a business’s tax returns, such as when a business which works in a cash heavy sector reports low income from cash in its declarations. If HMRC finds a discrepancy, then it may lead to an investigation, which could mean a substantial fine or potentially jail time.
Phil Kinzett-Evans, Partner at UHY Hacker Young, told City A.M. this morning: “HMRC is looking to squeeze as much money as they can from every investigation. Those who avoid tax are now facing larger penalties as HMRC looks to make up for income lost during the pandemic.”
HMRC will also be targeting those who have seen their wealth increase through methods which have gained particular popularity recently.
Phil Kinzett-Evans explained: “Over the past 22 months retail trading and cryptocurrency speculation have boomed in popularity – there are concerns much of the income gains from these activities are going unreported. Those who fail to declare their profits may be actively pursued by HMRC and could potentially face substantial fines.”