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Overly complex tax system is "tripping up" SMEs

A crackdown on payroll errors has netted HMRC an additional £737 million and small businesses are being hit the hardest according to a leading accountancy firm.

Research by UHY Hacker Young has found that HMRC has collected an additional £737.3m from investigations into companies over tax avoidance and errors relating to employer compliance.

It says that SMEs have been hit particularly hard by the crackdown on payroll tax mistakes, accounting for over half (£373.4m) of the additional sums collected - despite being responsible for only 11% (£96bn) of total UK payroll.

Larger businesses make up 89% of UK payroll (£726bn), but they have paid what UHY Hacker Young describes as the " comparatively low figure" of £363.9m in additional payroll taxes and penalties.

The accountancy firm says that SMEs are more likely to make mistakes with payroll - partly because they are less likely to seek advice on tax issues and also because they are more likely to take on casual labour or run flexible workforces - making it difficult to determine which payroll tax bracket is right for their employees.

Roy Maugham, Tax Partner, said: 

"SMEs are being chased for a totally disproportionate amount of underpaid payroll tax, compared to their larger counterparts. But much of the underpaid tax is due to genuine errors. This strongly suggests the Government needs to simplify its systems to help SME avoid mistakes. While SMEs will be reluctant or unable to pay for expert advice, they are clearly struggling to navigate the tax system as it stands."

Umbrella companies - which employ outsourced personnel on a fixed-term basis, offering a cheaper alternative for SMEs to employing full-time staff - have been a particular problem for SMEs when it comes to payroll tax.

"Those employing flexible workforces or operating as umbrella companies, for example, might find it difficult to determine which 'box' their labour force falls into when it comes to paying tax," said Maugham
"With HMRC honing its ability to spot inconsistencies in tax returns across the board, small clues - such as when a supposedly outsourced employee is offered annual leave by a company - will trigger an investigation."

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