The variety of VAT investigations launched by HM Income & Customs (HMRC) into SMEs and the quantity of fines imposed for late VAT funds each elevated final yr, new analysis reveals.
Within the 12 months to 31 March 2025, legislation agency Pinsent Masons discovered that VAT investigations opened into small companies rose to 94,022, up from 90,166 the yr earlier than, whereas the variety of investigations opened by the Rich and Mid-Sized Enterprise Compliance unit was 11,256, in comparison with 8,451 in 2023-24.
The will increase got here as HMRC appears to shut the VAT tax hole. The tax authority has calculated that underpaid VAT jumped from £8.9 billion to £11.4 billion.
Bryn Reynolds, associate at Pinsent Masons, mentioned:
“HMRC has bought each encouragement it wants from HM Treasury to open extra investigations and dig deeper. The quantity of additional useful resource that HMRC has been given to undertake these tax investigations by the chancellor has been actually putting.
“VAT is a notoriously complicated space, the place small variations in actual fact sample can lead to giant VAT assessments. Given a VAT evaluation might be existential to a enterprise, there’s a excessive danger of disputes between companies and HMRC.”
HMRC has additionally elevated the quantity of fines imposed on companies for late fee of VAT.
Accountants Lubbock High quality discovered that 582,000 monetary penalties have been levied on companies for late fee of VAT within the 12 months to 31 July, up from 569,000 over the earlier 12 months. Fines totalled £302 million, in comparison with £294 million within the earlier yr.
Lubbock High quality’s Jaspal Dhillon mentioned the rise in fines reveals how companies are struggling below rising prices, regulatory burdens and an unsure financial surroundings.
He added that one other issue is the VAT late fee penalties system, launched in 2023, via which corporations face extra common fines. They get a penalty equal to three% of the excellent VAT after 16 days overdue, then an extra penalty price 3% at 31 days.
“When you’re a struggling enterprise, the very first thing it is advisable to do is make sure that your returns are filed on time and that you’ve requested a Time To Pay Association from HMRC, as it may be the distinction between survival and failure”, Dhillon suggested.
“Finally, HMRC will probably be a lot more durable with companies that disguise their head within the sand and ignore their overdue tax payments.”
In response to HMRC, overdue tax money owed owed to it amounted to £42.8 billion for the 2024/25 monetary yr.
