London’s SMEs have been advised to pay attention to their tax records after a report found Britain’s small businesses had failed to claim around £2bn in expenses for the last financial year.
Businesses missed out on claiming a quarter of the potential VAT refunds they are entitled to, resulting in an unnecessary cost of £1.2bn in the financial year of 2011/12, according to online receipt processing and management service ExpenseMagic.
Four in 10 SMEs are not confident enough in their expense records to claim all the tax deductions, while the same proportion do not know the size of their monthly expenditure bill.
But SMEs which fail to get a grasp of their tax records could soon fall foul of HM Revenue and Customs (HMRC), according to ACCA technical manager of tax and business law Jason Piper.
“Clearly, if your tax records aren’t sufficient to support all the deductions you’re entitled to then you’ll lose out to the tune of that tax deduction.
“Perhaps more worryingly, this will be a red flag to HMRC that there may be other problems with your tax records – if you have no evidence at all to support your tax returns, then they can investigate your affairs and make their own assessment of the ‘correct’ taxable income figures.”
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Piper cited contenders on the BBC’s The Apprentice as an example of the financial errors that can be made without a proper handle on the figures.
“On the PAYE front, things will be changing over the next few months as everyone goes over to the new RTI (Real Time Information) reporting process,” said Piper.
“Once the system hits business-as-usual status it should reduce the number of expensive errors in PAYE operation, but if your current records are incomplete or inaccurate, the transition will highlight any shortcomings. HMRC can offer help on this one.”
Small businesses do not necessarily need a complex computer programme to keep on top of their expenses and other tax returns, Piper said. Sometimes even two shoeboxes or a simple spreadsheet could be the best route for keeping on top of your businesses finances.
But for those firms who do wish to seek advice over their finances, Piper said: “Try to find an adviser who understands your business.
“The VAT system still contains wrinkles for businesses such as dentists or funeral directors, and a specialist in your field will be able to identify the problem areas quickly and effectively, and know how best to present your case to the authorities in the more complicated areas.”