A lot has been written about Making Tax Digital (“MTD”) and the time and cost impact on businesses of the more onerous reporting requirements.
I recognise that, for some, the changes appear relatively minor in terms of accounting procedures, whereas, for others, there may be a fundamental change in accounting software. But once businesses have got used to this, is that an end to the impact?
Businesses are now submitting vast amounts of data to HMRC – information that provides details about individual transactions undertaken. Call me a professional sceptic, but HMRC is not collecting this information simply to ignore it.
HMRC has already, and continues to, improve its information collection and collation systems. We must therefore expect there to be a corresponding increase in activity from HMRC based on the increased volume of data being collected by it. I expect HMRC to test data for anomalies and inconsistencies, and to compare data across similar organisations.
And so, back to my initial point –
Are you insured?
In my view, it is increasingly important for businesses to consider the benefits of taking up tax investigation insurance.
In recent years, certainly in my experience, HMRC enquiry activity has been at a relatively low level. As a result, the perception of clients can often be that there is only a small risk of their being subjected to an enquiry.
But HMRC activity is changing. To me there are clear indications that HMRC is targeting individuals and businesses, not at random, but based upon the collection and collation of data. HMRC is gathering information from multiple sources, assessing whether this indicates a potential risk of lost tax revenues, and then making enquiries.
And so circle back to MTD. HMRC is now receiving huge amounts of additional, digital information that it can readily review, interrogate and test. Add that to the other data that it is already gathering from other sources, and HMRC is now in possession of a vast amount of data about individual businesses.
The cost of Tax Investigation insurance is generally relatively low. In view of HMRC’s increasing data capabilities, it is certainly worthwhile considering insurance. Typically I see that the annual insurance premium is less than the professional costs of dealing with even the most straight-forward HMRC enquiry.
Given the likelihood that HMRC activity will increase on the back of MTD, my recommendation would be to take up insurance.
Should you want more information regarding the tax insurance we can offer please get in touch today and we will be happy to help and ensure you have adequate protection for you and your business.
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