a:5:{i:1;a:5:{s:5:"order";s:1:"1";s:8:"media_id";s:5:"16389";s:3:"url";s:0:"";s:7:"caption";s:0:"";s:11:"description";s:2281:"

The HMRC survey of tax-evading small and medium-sized enterprises (SMEs) sheds light on their motivations and methods.

In their latest briefing note Mike Down, head of tax investigations, and Sarah Saunders tax manager at RSM comment that HMRC are looking to increase the perception that tax cheats will get caught and punished even for ‘small’ evasions.

“We have some concerns: there is a risk that innocent errors may be mistaken for evasion and punished excessively. While, as the report recognises, increased publicity about evasion may have the countereffect of normalising evasion.

“This will be a hard balance for HMRC to achieve but we applaud their initiative by seeking real world solutions to real world problems.”

HMRC estimates that evasion contributes £5.2bn to the tax gap, about 51% of which is due to SMEs.

Researchers interviewed 45 SMEs who had been found by HMRC to have deliberately evaded tax. The research sought to establish motivation, evasion methods and possible deterrents.

The report identified four categories of SME evaders: Click above to find more more.

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Carrying out small opportunistic evasions, buying family shopping through the business, or doing occasional cash jobs. They tend to be one-person businesses with difficulty separating business & personal finances. They see themselves as compliant.

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Carrying out more focussed evasion, feeling the business would fail if they paid the correct tax. They tend to backdate invoices and understate cash income.

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These people deliberately push boundaries between business and personal finance. They pay for a standard of living they feel they deserve, but which the legitimate business profits do not justify. This type of evasion stretches from simple things like paying for a family meal on the company card to more extreme examples such as funding luxury holidays.

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These are structures often deliberately set up to aid evasion, sometimes using quite complex strategies. These evaders run a real risk of criminal investigation and potential prosecution.

A variety of justifications were given for evasion. These included claims that the amounts in question were insignificant in comparison to big businesses. Others said ‘It’s normal practice in my industry’ or the optimistic ‘I pay enough tax already’. Sadly one said ‘My business would go bust if I paid the correct tax’.

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Four types of tax evaders targeted in HMRC campaign

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