The tax gap in the UK – which is the difference between the amount of tax owed and the amount that has been paid – remains wider than anticipated.

This, HM Revenue & Customs (HMRC) suggests, is largely the result of SMEs not fully comprehending their tax obligations.

The tax authority’s figures for 2021/22 show that small and medium-sized enterprises (SMEs) contribute significantly to the national tax gap, with 56 per cent (£20.2 billion) of the total gap (£36 billion) accounted for by underpayments or non-payments by these businesses.

Careless errors are often to blame, which is why SMEs should prioritise compliance to avoid being hit by unnecessary tax penalties and investigations, and to avoid becoming part of the tax gap problem.

Understanding tax obligations

To understand your tax obligations, it’s important to know exactly what taxes you are liable for, initially. These include Corporation Tax, VAT, Income Tax and National Insurance Contributions (NICs) via PAYE.

According to HMRC, Corporation Tax, Income Tax, NICs and Capital Gains Tax (CGT) together account for 65 per cent of the total tax gap.

Organisation and meeting deadlines

Taking care over keeping good records of all financial transactions, is key to ensuring that you are paying the correct amount of tax.

A lack of sufficient care was responsible for almost a third (30 per cent) of all underpayments of tax.

It seems an obvious observation, but ensuring that all tax returns and payments are submitted by the relevant deadlines will also mean SMEs avoid penalties for late submission.

Delays in payment or submission can increase the chance of errors as a last-minute rush often results in inattention.

Stay up to date with tax laws and changes

Tax laws are subject to change and being unfamiliar with any updates could lead to oversights in your reporting; this in turn can leave you vulnerable to penalties and, in some instances, even investigation.

It’s important to keep abreast of the latest tax changes, whether in respect of tax law, tax rates, tax reliefs or deadlines.

Maintain good communication with HMRC and your accountant

If SMEs do find themselves to be in a position where they’re unable to pay their taxes on time, they should endeavour to make contact with HMRC, or their accountant, to discuss their circumstances.

HMRC are at liberty to offer payment plans and other solutions, to support taxpayers who need help.

With HMRC intensifying its focus on non-compliance by small businesses, SMEs must pay close attention to their tax obligations and seek advice if they are unsure of how to meet their responsibilities.

How can George Hay help?

If you are an SME business owner, and you would like assistance with understanding and meeting your tax obligations, contact us to discuss your requirements with one of our expert team of tax professionals.

LINK: Measuring tax gaps 2023 edition: tax gap estimates for 2021 to 2022

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