Last year, HM Revenue & Customs (HMRC) collected an extra £4.4 billion from small and medium-sized enterprises (SMEs) following investigations into the underpayment of VAT.
Revenues collected more than £1.7 billion from investigations into small businesses alone, and the total VAT collected over the year was up by 18 per cent on the underpayments recovered in 2017/18.
According to the report, growth in the ‘VAT gap’, meaning the difference between what the taxman believes HMRC is owed and what it gets, is responsible for the increase in investigations, particularly into small and medium-sized firms, as they are believed to be a higher risk for underpayment.
Last year the VAT gap hit a record high of £12.5 billion, which was a 13 per cent increase on the £11.1 billion clawed back in 2016/17. In response to this, HMRC now has specialist teams looking into cash-based industries across the UK, such as fast food outlets in London and taxi firms in the East Midlands and Yorkshire.
The taxman is also taking a keen interest in online retailers and is working with online platforms Amazon and eBay to persuade their online sellers to become VAT registered.
As one of the report’s authors commented, HMRC will always come down hard on any trader who appears to be underpaying VAT and, because of its association with online platforms, the taxman now understands better who is and is not paying the correct amount of VAT.
Commenting on the report, a spokesperson for the Revenue said that the body wants to get tax right for everyone so that all taxpayers, regardless of who they are, pay the correct amount of tax at the right time.