Oliver Wright: Struggling entrepreneurs feel betrayed by HMRC's heavy-handed crackdown

Many small companies are struggling to stay afloat, let alone having the money to spend on an accountant

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When George Osborne announced plans in his 2010 spending review to give Her Majesty's Revenue and Customs an extra £900m over four years to "address the tax gap and tackle tax avoidance and evasion" the move was widely welcomed.

The Treasury predicted it would raise an extra £7bn a year in tax revenues by 2015 which could be offset against what were already very harsh public sector spending cuts. Mr Osborne trumpeted the move as a break from the last Labour government "where the gap between the taxes owed and the taxes paid grew considerably".

For HMRC, a key aspect of the plan was to tackle what they perceived to be the underpayment of tax by Britain's 4.8 million small and medium-sized enterprises – which they calculated accounted for up to 50 per cent of the "lost" tax revenues.

They announced plans to roll out a programme of "business record checks" targeting thousands of small business for spot checks, assessing their paperwork for inconsistencies, with the power to fine those companies not up to scratch.

Pilot schemes were set up and from this year the plan was to roll it out nationally. But, 15 months on, the scheme is fast unravelling. For a start, the economic situation has deteriorated sharply from what the Government was predicting in 2010. Many of these companies are struggling to stay afloat, let alone having the money to spend on an accountant to ensure their records meet the required standards. If they try to do it themselves, they not only risk getting it wrong but, as the Federation of Small Businesses points out, they lose valuable trading time when they could be selling to customers.

There is also a strong suspicion that HMRC is applying double standards – going after businesses that don't have armies of lawyers and accountants who can tie them up in knots for months or years.

The revelations, in the past year or so, that HMRC allowed Goldman Sachs and Vodafone to pay millions of pounds less in tax than they believed they owed has added to these concerns.

The plans have also gone down very badly with Conservative backbenchers. Many have already had their ear bent by local businessmen in their constituencies who complain that Government promises on cutting red tape for small businesses have not be fulfilled. The idea that HMRC is planning to add to their burdens has gone down very badly.

Yesterday HMRC said it was conducting a "detailed review" of the plans. Given that they held a two-month consultation at the start of last year – and decided to plough on regardless – the new review suggests that powerful voices are now aligned against them.

For small businesses, that review can't come soon enough.

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