HMRC pulls in £373 million from SME payroll errors

Small businesses have been hit particularly hard in a crackdown by HMRC on payroll tax errors, according to accountancy group UHY Hacker Young.

Of all the money brought in by HMRC from investigations into tax avoidance and employer compliance errors related to payroll in the 2014/2015 tax year, more than half came from SMEs. This is despite the fact that SMEs make up just over a tenth of the UK’s total payroll.

Slightly less was recovered from large businesses despite the fact that big business was responsible for the majority of the payroll.

The figures show that HMRC recovered a total of £737 million from investigations into payroll errors. Of this, £373.4 million came from SMEs and £363.9 million was recouped from big business. SMEs were responsible for just 11%, or £96 billion, of the UK’s payroll total of £822 billion. Larger businesses were responsible for 89% of payroll, or £726 billion.

Hacker Young argues that SMEs are often poorly placed when it comes to dealing with complicated tax affairs, as they might not have the resources, finances or expertise in place to get appropriate advice. They do not argue that HMRC’s losses from payroll mistakes should not be recouped. They do claim however that the fact that much of the underpaid tax is due to genuine errors suggests that the Government needs to simplify its business tax systems.

Investigations by HMRC can be expensive, time-consuming, disruptive and extremely worrying and it’s important for SMEs going through this to seek out proper advice regarding HMRC Time to Pay schemes and other issues surrounding PAYE arrears and unpaid tax.

The research comes as business groups have renewed their criticisms of the new apprenticeship levy and the introduction of quarterly digital tax reporting.

The apprenticeship levy has already been described as a ‘payroll tax’ as it is currently due to be charged at a rate of 0.5% on payrolls exceeding £3 million. The Association of Taxation Technicians (ATT), meanwhile, is calling on HMRC to postpone the introduction of Making Tax Digital by at least a year following the announcement of a delay to the consultation process because of the EU referendum.

By Phil Smith

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