Could new HMRC powers make life difficult for SMEs?

New rules surrounding accelerated payments for businesses who have taken part in avoidance schemes are due to come into force – but what does it mean for the companies involved?


Some taxpayers could face ‘financial strain’ as a result, as HMRC will have the power to make any person or business who has entered into an avoidance scheme pay any disputed tax up front.


This means they could be faced with a considerable outlay, as they would no longer be able to wait until the outcome of a tribunal ruling before having to pay up.


Looking to the future


While these funds would be repaid if the tribunal was to rule in favour of the company, those businesses could still face an uncertain future.


In situations where finances are tight, paying fines ahead of a tribunal could impact severely on the cash flow of the business.


In some cases this could open up the possibility of corporate insolvency, as the processes could damage a company’s trade and reputation before the outcomes of any ruling.


While it could be argued that businesses who have deliberately avoided tax payments should be punished for doing so, this view neglects any businesses that may face action through error or naivety.


HMRC has argued that payments would only be “the money that is legally due” but for companies operating on tight budgets, this could still leave them in difficulty.


Clear sign of intent from UK government


Perhaps more importantly though, HMRC said cases would be dealt with on their own individual merits, meaning businesses who do encounter errors should be able to solve them before insolvency envelops them.


The new rules will apply to any businesses or individuals deemed to have taken part in any registered scheme since 2004, with money returned with interest if a court rules against HMRC.


The move is expected to generate an extra £4bn in upfront payments across the next five years and will affect thousands of people who use tax avoidance schemes.


Essentially, the government is flexing its muscles in a bid to tackle tax avoidance, with the new rules a clear signal of intent.


By Phil Smith


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