Markel, a leading tax services and insurance provider, predicts that HMRC tax investigations will significantly increase in Northern Ireland during 2023. With Danske Bank forecasting that output in the region will reduce by around 1% in 2023, HMRC’s actions will add significant pressure on businesses already facing uncertain futures.
HMRC tax investigations can be incredibly intrusive for businesses. Markel estimates that a typical enquiry lasts for between 18-24 months, with client firms paying in the region of £5,000 in excess accounting fees. At a time when inflation and the cost-of-living crisis is creating a highly challenging recessionary environment, this additional pressure could prove disastrous for employers across the region.
In last year’s budget statement, the Chancellor announced an additional £1 billion for HMRC over the next four years to tackle tax evasion and fraud, including investment in technology and additional staff to investigate cases.
“With recent scrutiny by the National Audit Office on HMRC’s pandemic performance, HMRC are seeking to improve compliance performance levels, which is leading to an increase in investigations,” said James Cordiner, Tax Investigations Manager at Markel. “Estimates suggest an additional 2,500 HMRC compliance staff by 2022-23 but with these likely to take around four years to be fully up to speed, the length of enquires and associated costs are likely to rise further.”
Markel has highlighted several risk factors that will put Northern Irish businesses on HMRC’s radar and increase their chances of being investigated:
- The Covid Bounce Back Loan Scheme has been beset by fraud, increasing HMRC’s focus. With 31% of Northern Irish firms taking a bounce back loan (compared to a UK average of 26%), Northern Ireland will be a centre of attention for HMRC.
- Furlough offers another indicator with this scheme again open to abuse. Northern Irish firms furloughed around 13% of their workforce, almost 110,000 people, representing a significant number of the employed people in the region.
- The R&D tax credit scheme is a third area that has come under scrutiny in recent months with HMRC looking to reduce the number of spurious applications. Northern Ireland made almost 2,500 claims in the 2020-2021 year; 2% of the business population, compared to a UK average of just 1.6%.
“An increasing number of clients are being contacted by HMRC looking to investigate their affairs,” said Stephen Houston, Director of GMCG Chartered Accountants. “We have a duty of care to clients in these cases and want to ensure we get the best possible result. HMRC are increasing the pressure on companies in part to get their own performance figures up, which is causing unwanted additional challenges at what is a difficult time for everyone.”
“It is important that HMRC seek to recover the correct taxes from the right businesses however in doing so they will inevitably target businesses that may have done nothing wrong and are struggling financially. It is therefore important to ensure that any check by HMRC is defended appropriately based on the facts of the case,” concluded Cordiner.
About Markel Tax
Markel Tax, part of Markel UK, offers complex tax and funding consultancy services to UK accounting firms, allowing them to extend the range of services they are able to offer their clients.
Five hundred thousand businesses are protected from the costs of HMRC investigations through Markel’s fee protection insurance, purchased by SMEs directly or distributed through our accountancy partner firms.
Markel also operates one of the UK’s most successful business helpline services, supporting over 300,000 SMEs each year with their tax and legal challenges.
