HM Revenue and Customs (HMRC) continues to invest time and money in its tax enquiry operations as it works to bring money back into the Treasury to help ease government finances.

Figures revealed last year showed a 21 per cent rise in tax investigations into sole traders and small businesses by HMRC between the 2020/21 and 2022/23 tax years.

On top of that a further £79m has been invested into HMRC’s operations as it looks to recover £725million in unpaid taxes over a five-year period.

An additional 2,500 compliance staff were recruited to help in this task in 2022/23.

And HMRC now uses a sophisticated database called ‘Connect’ to start more than 80 per cent of enquiries. It analyses more than 55 billion pieces of data, including land registry documents, social media account information and banking details.

HMRC activity has increased significantly in recent months, with the number of new enquiries opened now exceeding pre-pandemic levels.

What sparks an investigation?

An investigation into your tax return by HMRC may be triggered by several reasons: a tip off, paying the incorrect amount of tax, late returns or simply working within a selected area, to name a few.

No reason has to be given as to why the enquiry is being undertaken. The assumption when you’re selected for a tax investigation is that you have done something wrong. This is rarely the case.

Random enquiries into tax affairs can and do happen. Whether you’re an individual taxpayer or business owner, an investigation is possible, and nobody is exempt.

That brown envelope arriving on your doorstep is not to be ignored.

Any taxpayer can be targeted by HMRC, answering all its questions takes time and the enquiries often drag on for months and sometimes take years to conclude.

It can cost a lot to defend you, whatever the result. That is why it as important as it has ever been for you to protect against these costs.

What happens during an investigation?

Once HMRC decide to investigate you must comply with their requests.

HMRC will check your accounts, request a plethora of documentation, ask lots of questions and may even want to visit you in person.

No additional tax may be due, but you will still be left with enquiry fees which could cost thousands.

Investigations are costly, stressful, and an unwelcome distraction from day-to-day life; whether HMRC initiate a Full Enquiry of your tax history or an Aspect Enquiry into a specific area of your return, you will be liable for the professional costs to bring about a prompt resolution.

What can you do to protect yourself or your business?

WNJ’s professional fees do not cover the additional costs of handling tax enquires and compliance checks.

However, the good news is there is help available. Tax Fee Protection, like the scheme WNJ offers its clients, will protect you from our fees associated with an HMRC enquiry, limiting the stress and uncertainty.

It will cover fees incurred translating the many complicated questions the taxman may pose, manage the entire conversation with HMRC, help you submit any required information and challenge its findings.

The protection gives you the comfort of knowing you will be fully defended if you fall under HMRC’s spotlight.

There are other benefits from the WNJ scheme, including complementary telephone access to business support advice lines on employment law, health and safety and general legal issues.

• To find out more about the Tax Fee Protection service offered to WNJ clients please call 01772 430000

Growth measures targeted at small firms are a good start and should be built on to get the economy back in gear, according to business leaders.

The Consumer Price Index (CPI) rose by 3.4 per cent in the year to February 2024, down from 4.0 per cent in January – pointing towards a future interest rate cut.

Many of the key economic indicators published in 2024 have also shown slight improvements compared with 2023, giving rise to a feeling of “cautious optimism”.

Tina McKenzie, policy chair, at the Federation of Small Businesses (FSB), said: “Any easing in inflation brings relief to small firms, and the reported drop is a step towards reducing interest rates by the summer.

“However, we mustn’t discount the cumulative damage that has been done to small businesses’ margins and cash reserves by inflation having been so high for so long.

“With the fall reported driven largely by falling food prices for consumers, the hope is that this will ease some of the pressures on household budgets, to the eventual benefit of small firms in consumer-facing sectors.

“Small firms ended last year with a decrease in confidence levels, indicating that this first quarter would be tricky in many respects.”

She added: “In order for any optimism to be nurtured, the promising start signalled by the increase in the VAT threshold to £90,000, the announcement on apprenticeships and the business rate relief for small firms in the retail, hospitality and leisure sectors should be built on.

“What unites these growth-promoting measures is that they are targeted where they will have the most impact: on small firms, who are the ones with the potential to expand and kick the economic recovery into a higher gear.

“Measures to ensure employment levels are maintained and improved are also needed.

“Wage inflation has eroded the Employment Allowance’s relative value, underlining the need for it to be uprated, especially with the rise in the National Living Wage.

“This will help small employers keep people in work, and to grow their workforce.

“Politicians and policymakers should remember that small firms have been the driving force behind our recovery from past recessions, and this time around it’ll be no different, if they are given the right conditions to start up, scale up, and prosper.”

• To discuss any issues raised by this article please contact me on 01772 43000

The raising of the VAT threshold for small businesses announced by Jeremy Hunt in his Budget statement is undeniably welcome news.

However, raising it to £90,000 falls short of the £100,000 figure that the Federation of Small Businesses had been calling for. Also, it has to be pointed out this is the first increase in seven years.

The hospitality industry will welcome the extension to the freeze on alcohol duty but there will be disappointment the VAT changes didn’t include measures specifically designed to help a sector that continues to be under real pressure.

The VAT rate for hospitality and tourism businesses was reduced during the pandemic but that scheme came to an end in April 2022.

Any new measures to ease the burden would have been widely welcomed. The chancellor said the government was backing “the great British pub”. The industry may well have a different opinion.

The freeze in fuel duty will also be helpful to many small businesses when it comes to transport costs.

The announcement that the higher rate of capital gains tax on residential property will be reduced from 28 per cent to 24 per cent came as a surprise. The thinking behind it is that the lower rate will result in more transactions, leading to more tax revenue.

The chancellor said the furnished holiday lettings (FHL) regime, which gives extra tax reliefs for costs incurred furnishing holiday lets, will be abolished. He will also removing multiple dwellings relief.

The government will hope that the much-predicted 2p cut in National Insurance will be a vote-winner. Coupled with the announcement in the autumn statement the reduction in NI is worth about £900 a year for the average worker.

Whether that figure and the package of measures announced by Mr Hunt will be enough to change the political dial remains to be seen.

• To discuss any issues raised by the Budget please contact me on 01772 430000

As widely forecast, National Insurance (NI) for employees was cut by the chancellor in his Budget by a further 2p – from 10 per cent to eight per cent.

Making his spring statement in the Commons, Jeremy Hunt said that the measure would be worth around £450 a year for someone on an average salary.

And in its statement The Treasury said: “In the Autumn Statement, we cut employee National Insurance by 2p. Today we’ve cut it again.

“This slashes the main rate of Employee NICs by a third. This helps to grow the economy by encouraging people to work, and puts more money in people’s pockets.”

Employees don’t have to pay NI on earnings below £12,750, and there will be no change to the two per cent national insurance rate on earnings over £50,270.

In another Budget announcement, from April 6 the main rate of Class 4 NICs for the self-employed will now be reduced from nine per cent to six per cent.

Combined with the abolition of the requirement to pay Class 2 NICS, the Treasury says this will save an average self-employed person earning £28,000, £650 a year.

Self-employed people earning less than £6,725 a year can still choose to pay class 2 NICs to gain access to certain benefits, including the state pension.

And those earning between £6,725 and £12,570 are entitled to the National Insurance credits without having to pay the tax.

Mr Hunt said that the overall NICS cuts package was aimed at “rewarding work.”

Both NI and income tax thresholds, which determine when people start paying each rate of tax, have been frozen since 2021. They will stay frozen until April 2028.

The government announced that it is increasing the income threshold at which the High Income Child Benefit Charge (HICBC) comes into play from £50,000 to £60,000, from April 2024.

In addition, the rate at which the HICBC is charged will also be halved from one per cent of the Child Benefit payment for every additional £100 earnt above the threshold, to one per cent for every £200.

This means Child Benefit will not be withdrawn in full until individuals earn £80,000 or higher.

It is estimated that overall, almost half a million families will gain an average of £1,260 towards the costs of raising their children in 2024/25. And 170,000 families will be taken out of paying the tax charge.

The government said it also recognises issues that have been raised around the unfairness in how the HICBC is currently charged on an individual basis.

For example, dual income families on £49,000 each – with a household income of £98,000 – may not be liable to the HICBC, but a single parent earning over £50,000 could.

In response, there are plans plans to administer the HICBC on a household rather than individual basis by April 2026.

• To discuss any issues raised by this article please contact me on 01772 430000

Chancellor Jeremy Hunt announced an extension to the freeze on alcohol duty to February 2025 in the Budget, declaring that the government was backing “the great British pub”.

The move has been welcomed and will benefit 38,000 pubs across the UK. However, there have also been vocal calls for more support for the hard-pressed hospitality sector.

And there was widespread disappointment that Mr Hunt didn’t go further and reduce the industry’s VAT burden. He also had nothing to say about business rates.

Emma McClarkin, chief executive of the British Beer and Pub Association, called the freeze good news for brewers, pubs and consumers, but has warned that the hospitality trade is on a “cliff edge”.

She said: “This April brewers and pubs still face a £450million cliff edge of spiralling wage costs and business rates increases, particularly those pubs that are larger or food-led.

“It is disappointing that the chancellor did not choose to go further with a cut duty, reduce VAT or cap the increase to the business rates multiplier which would have helped mitigate the huge cost of doing business.

“Pressures on our sector remain acute with margins being squeezed to the point where we fear it is likely that a further 500-600 pubs are likely to close this year on top of the 530 that closed in 2023.

“No government should turn a blind eye to the erosion of such an integral economic, social and cultural asset and it is vital that at the election the political parties commit to putting in place a fiscal and policy framework that will see our sector thrive for the long term and not continue to deteriorate”.

She added: “We very much hope that the decision to cut National Insurance contributions for all workers by 2p in the pound will boost consumer spending power and encourage people to enjoy an extra pint in their local.

“But I urge the government to look again at the urgent measures needed to make the cost to doing business more affordable at the next fiscal event and through policy commitments made in the run up to the election to truly back the British pub.”

The Heineken brewery also called for more help. A spokesperson said: “Licensees across the UK now need further help to thrive, in the form of long-term, fundamental reform to the business rates system which despite recent support still sees UK pubs overpaying by £400m.”

Mr Hunt announced that fuel duty will remain at its current rate and be frozen for the next 12 months.

And he has also extended the “temporary” 5p cut on fuel duty, which was set to end this month. The moves will help motorists and businesses with road transport overheads.

In his statement Mr Hunt also revealed the OBR expects inflation to fall below the two per cent target in just a few months – a year earlier than forecast in the autumn statement.

• To discuss any issues raised in this article please contact me on 01772 430000