Financial advisers are among the small and medium size businesses being "aggressively" targeted by HMRC for VAT payments, contributing to a 10% jump in VAT taken from SMEs in the last year, according to a national accountancy group.
UHY Hacker Young Group claimed HMRC has become increasingly aggressive in challenging the VAT arrangements of small businesses, including advisers, targeting them to "challenge long-accepted VAT arrangements" or impose "unrealistic burdens" to claim back VAT.
The group pointed to figures which suggested HMRC took a record £3.9bn in extra VAT from compliance investigations into small businesses in the year leading up to March - up 10% on the £3.6bn brought in the previous year.
HMRC rules state advice fees and commission are always taxable, while remuneration for intermediary service may be VAT exempt.
HMRC has taken an increasingly hard line over the last year in its attempts to increase tax receipts
UHY Hacker Young said there are concerns SMEs are treated as ‘second-class citizens' in VAT disputes, compared to large businesses, because they are not served by the same HMRC "highly-trained, experienced" customer relationship managers but by staff in local offices.
The consultancy also said many SMEs cannot afford to challenge HMRC's demands for extra VAT in court, and when they do the law is "heavily weighted in HMRC's favour".
Partner Simon Newark said: "HMRC has taken an increasingly hard line over the last year in its attempts to increase tax receipts, so more and more small businesses in particular are finding themselves facing investigation over VAT arrangements that have long been accepted by the tax authority.
"The cost of challenging demands for extra VAT through the courts can be prohibitive for a lot of small businesses, and many will simply decide it's simpler and more cost-effective to just write a cheque to HMRC, even if they believe the demands are incorrect.
"Small businesses run the gauntlet of HMRC's local offices and the much-maligned National Advice Service helpline and Written Enquiries office. The level of service and accuracy of decisions they receive from HMRC can vary quite widely, and there is concern that many of them struggle to get a fair and cost-effective outcome from investigations because of that."
Extra VAT collected by HMRC from SME compliance investigations
Source: UHY Hacker Young
