HMRC reaps billions from investigations as small firms drown in 'byzantine' tax system - London Business News | Londonlovesbusiness.com

HM Revenue & Customs recovered £6.3bn in additional compliance revenue by closing around 255,000 investigations into individuals and small businesses. The average yield per investigation increased 23% over the past year to £24,700, up from £20,100. Enforcement activity is increasingly focused on areas where mistakes are more likely rather than deliberate evasion, reflecting efforts to close the tax gap and improve compliance. Tax advisers attribute rising returns partly to growing complexity in the tax system, especially for small businesses and property investors. Changes to buy-to-let mortgage interest relief have led to more avoidable errors among amateur landlords. Small businesses face an expanding compliance burden and administrative requirements, with forms such as Corporation Tax 600 potentially requiring completion of more than 200 boxes and multiple supplements.

"The average yield from each investigation rose by 23 per cent over the past year to £24,700, up from £20,100 previously, according to analysis by accountancy group UHY Hacker Young. Overall, HMRC closed around 255,000 investigations last year, recovering £6.3bn in additional compliance revenue, underscoring the scale of enforcement activity targeting smaller taxpayers."

"Officials say the figures reflect a sustained effort to close the tax gap and improve compliance, with investigations increasingly focused on areas where mistakes are more likely rather than deliberate evasion. But tax advisers argue that the rising returns are being driven at least in part by the growing complexity of the system itself, particularly for small businesses and property investors."

"Phil Kinzett-Evans, a partner at UHY Hacker Young, said many smaller operators simply lack the capacity to keep up with what he described as an ever-expanding compliance burden. He pointed to changes in the taxation of buy-to-let mortgage interest relief as one area where "avoidable errors" have become more common, particularly among amateur landlords navigating shifting rules."

""Most small businesses want to pay their fair share but tax rules hit them disproportionately hard compared to large firms. Too often, tax rules are written as if every business has an accountant, which is far from true." More broadly, advisers warn that small firms are increasingly struggling with the sheer volume of administrative requirements, as tax legislation becomes more detailed and reporting obligations expand."

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