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HMRC paints a clear picture when it comes to tax returns

A campaign has been launched by HMRC that uses state of the art new computer technology to check businesses in certain industries are paying the right amount of tax.

Painters and decorators are one of the first groups of people to be targeted in the benchmarking campaign and Yorkshire based chartered accountancy firm Clough & Company is warning that they should take prompt action to ensure that their accounts are in order and their tax returns are correct.

Nigel Westman, a partner at Clough & Company, said:

“HMRC is launching a series of tax campaigns which are targeting tradespeople working in the home improvement market, individuals who make a living buying and selling goods direct to others or, are paid commission, and higher rate taxpayers who fail to submit tax returns.

“HMRC now has the capability to assess the data it holds about various businesses and industries to identify trends, anomalies and behavioural changes.

“This has enabled HMRC to develop benchmarks, which act as a guide for businesses to see how their net profit compares to their competitors and if it fails within the parameters expected by HMRC.”

Nigel added:

“Using information and returns from the whole of the painting and decorating sector for the past three years, HMRC has calculated that the majority of painters and decorators will have a net profit ratio in the range of 59 to 79 per  cent.

“They have adopted a similar tactic in relation to driving instructors, suggesting that the majority of driving instructors should have a net profit ratio in the range of 31 to 67 per cent.

“If the net profit ratio for a business falls outside the relevant range it could be a sign that some of the figures on the business owner’s tax return are incorrect, which could prompt further investigation from HMRC.

“It’s also worth noting that these trade sectors are just the start of the campaign, and in due course it’s expected most businesses will be benchmarked against HMRC statistics.

“To avoid putting themselves in this situation, taxpayers need to ensure that their tax return is correct by keeping full and accurate accounting records identifying all business income and expenditure.

“This should be done on a regular basis as it is much harder to accurately recall income and expenses incurred after a period of time has elapsed.” 

Nigel Westman Clough & Company
Nigel Westman

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