Tax services and insurance provider Markel predicts that HMRC tax investigations will significantly increase in the East Midlands this year.
With NatWest saying the East Midlands faced one of the fastest economic declines in the country at the end of 2022, including falling output and the first decrease in employment since January 2021, HMRC’s actions will add significant pressure on businesses already facing uncertain futures.
HMRC tax investigations can be incredibly intrusive for businesses. Markel estimates that a typical enquiry lasts for between 18-24 months, with client firms paying in the region of £5,000 in excess accounting fees. At a time when inflation and the cost-of-living crisis is creating a highly challenging recessionary environment, this additional pressure could prove disastrous for employers across the region.
In last year’s budget statement, the Chancellor announced an additional £1 billion for HMRC over the next four years to tackle tax evasion and fraud, including investment in technology and additional staff to investigate cases.
James Cordiner, Tax Investigations Manager at Markel, said: “With recent scrutiny by the National Audit Office on HMRC’s pandemic performance, HMRC are seeking to improve compliance performance levels, which is leading to an increase in investigations. Estimates suggest an additional 2,500 HMRC compliance staff by 2022-23, but with these likely to take around four years to be fully up to speed, the length of enquires and associated costs are likely to rise further.”
Markel has highlighted several risk factors that will put businesses in the East Midlands on HMRC’s radar and increase their chances of being investigated:
- The Covid Bounce Back Loan Scheme has been beset by fraud, increasing HMRC’s focus. With a quarter of East Midlands firms taking a bounce back loan, East Midlands firms won’t escape HMRC’s attention.
- Furlough offers another indicator with this scheme again open to abuse. East Midlands firms furloughed over 13% of their workforce, over 300,000 people, representing a significant number of the employed people in the region.
- The R&D tax credit scheme is a third area that has come under scrutiny in recent months with HMRC looking to reduce the number of spurious applications. Businesses in the East Midlands made almost 5,900 claims in the 2020-2021 year.
He added: “HMRC has been contacting more of our clients about tax investigations,” said Anthony Stevens, Partner at Kettering-based CFW Chartered Accountants & Business Advisers. “This extra work and expense is increasing the pressure on companies in the East Midlands, causing unwanted additional challenges at what is a difficult time. Our job is to support clients that come under investigation to ensure they have a robust defence and the best possible outcome.
“It is important that HMRC seek to recover the correct taxes from the right businesses however in doing so they will inevitably target businesses that may have done nothing wrong and are struggling financially. It is therefore important to ensure that any check by HMRC is defended appropriately, based on the facts of the case.”
