Key Takeaways
- Rising concerns over HMRC’s increased tax investigations put UK businesses on alert.
- HMRC is targeting firms fraudulently claiming COVID-19 financial support and R&D tax credits.
- Regional variations in risk factors are likely to influence HMRC’s tax investigation focus.
Increased Scrutiny from HMRC
Businesses across Britain have been put on alert amid rising concerns over the UK’s HM Revenue and Customs (HMRC) determined efforts to increase tax investigations. These investigations can take months to complete and potentially cost thousands in advisor fees.
HMRC is taking action against companies that have fraudulently claimed furlough and COVID Bounce Back Loans (BBLs), while also accelerating scrutiny over Research & Development (R&D) tax credit claims.
Risk Factors Affecting HMRC’s Focus
According to a recent analysis by Markel Tax, three risk factors are likely to influence HMRC’s tax investigation focus across different regions. These include R&D tax credit claims, businesses taking out a BBL, and workforce furloughs.
The R&D tax credit scheme has faced significant scrutiny over the last year, with an average of around 1.6% of businesses making a claim for R&D tax relief in 2020/21. The regions of Northern Ireland, North East, London, North West, and West Midlands were above this average.
The BBL Scheme, plagued by fraud, has seen HMRC’s focus increase in areas where a large proportion of businesses took out a loan. The national average for businesses taking out a BBL across all regions stands at 25.7%. Regions with percentages higher than this benchmark include Northern Ireland (30.9%), London (28.3%), North East, North West, and Wales.
Furlough is another indicator of likely HMRC scrutiny. London and the South West have a significantly higher proportion of their workforce being furloughed compared to the 13.6% national average, suggesting a higher impact on employment in these areas.
The Impact of HMRC Investigations
Tax investigations by HMRC can be highly intrusive for businesses. Markel estimates a typical enquiry lasts for between 18-24 months, costing businesses approximately £5,000 in excess accounting fees. Such investigations could add to the financial strain many businesses face due to inflation and cost-of-living crisis.
James Cordiner, Tax Investigations Manager at Markel, noted that while HMRC seeks to recover correct taxes, their scrutiny may target businesses that may have done nothing wrong and are struggling financially. Cordiner stressed the importance of adequately defending any check by HMRC based on the facts of the case.
About Markel
Markel Tax, part of Markel UK, offers tax and funding consultancy services to UK accounting firms, allowing them to extend their range of services. The firm protects 500,000 businesses from the costs of HMRC investigations through its fee protection insurance. They also operate one of the UK’s most successful business helpline services, supporting over 300,000 SMEs each year with tax and legal challenges. For more information, visit markeltax.co.uk.
Markel UK integrates insurance for SMEs with tax and legal services offered through sub-brands Markel Law and Markel Tax. More about the company can be found at uk.markel.com.
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