HMRC collected a whopping £705million in additional tax after investigations into companies’ payroll taxes over the last year, according to new research.
The findings from law firm Pinsent Masons show that £322million was collected from SMEs, while £383million was collected from large businesses over the tax year 2015/16.
HMRC have been cracking down on businesses across the board, with a focus on so-called ‘disguised self-employment’ and possible abuses by intermediary labour provider businesses.
Businesses use umbrella companies to augment their workforce, who in turn employ contract workers directly. These umbrella companies invoice businesses for work they undertake and pay those workers as employees or as self-employed.
Whilst many umbrella companies operate legitimately, some have engaged in tax avoidance via an abuse of travel and subsistence tax reliefs currently available to contract workers.
Those umbrella companies that HMRC sees as abusive often pay contractors minimum wage and then supplement each individual’s income, significantly reducing the amount of tax collected by HMRC.
In April 2016, new legislation was implemented to treat workers from umbrella companies as employed by the company who engaged them, treating each location they work at as their normal workplace. This restricts the expensing of travel and subsistence for workers from umbrella companies.
SMEs are particularly at risk of investigations, with many lacking in-house tax specialists or access to professional guidance.
SMEs are also more likely to take on casual labour or have a more flexible workforce than many larger businesses, which can add to the confusion in determining how to file payroll taxes.
Paul Noble, Tax Director at Pinsent Masons, says: “Payroll tax remains a focus area for HMRC, and it is unlikely that they will take the spotlight off any time soon.”
“HMRC has been working to restrict umbrella companies, and we may see the amount of additional revenue begin to fall whilst they refocus resources to target other areas of perceived avoidance and non-compliance.”
“It is also interesting to see that the extra tax collected from SME’s was nearly as much as from big business, which may indicate a disproportionate allocation of resources by HMRC against smaller employers.”
After new law was proposed last week, tax partner at RSM, Mark Waddilove, discusses the implications of the new legislation
Simon Brown takes us through the government schemes to drive innovation and development - and how you can utilise them
Financial Director takes a more in-depth look at the EU's second attempt at introducing a common consolidated corporate tax base (CCCTB) announced yesterday
Shared Services Centres will come under the gaze of regulators under country-by-country tax reporting rules. Michelle Perry discusses where the line might be drawn on your corporate's tax bills