Are you prepared for the taxman?

Are you prepared for the taxman?

Steve Wade, MD of Rhino Trade Insurance, explains how you can cover yourself against the taxman.

There is a growing tide of sentiment among the self-employed that the taxman is on the war path. What makes it hard to swallow is the apparent inability of HMRC to tackle global businesses like Amazon who appear to pay very little corporation tax in the UK with relative ease. It makes many of the UK’s 4.8m self-employed population believe HMRC sees them as a soft target. It’s fairly obvious that HMRC sees raising tax income from the self-employed as a key part of its strategy. For example, between 2013 and 2014, there was an astonishing 39 per cent rise in the amount of tax collected by HMRC from the millions of people completing self-assessment returns.

In the years since, the taxman hasn’t eased off either. It came to light in 2018 that HMRC was investigating as many as 500,000 small businesses – including sole traders – at any given time. This works out at around 10 per cent of all small businesses in the UK.

The scale of concern about this led a few months ago to the commissioning of a Lords’ report into HMRC’s powers and its treatment of taxpayers. It concluded the taxman is ‘aggressive’ and made it clear current HMRC attitudes and behaviour undermine the rule of law and hinders taxpayers’ access to justice.

Of course, HMRC being called out in this way is a positive step in the right direction. But realistically it could be years before anything changes and self-employed tradespeople could find themselves on the receiving end of harsh tax rules for quite some time yet.

Keep on top of your finances

Needless to say, anyone working for themselves is strongly advised to prioritise the state of their financial affairs and keep on top of things. Because statistically there is the possibility you could be in that 10 per cent of taxpayers under investigation in time.

Unfortunately, there’s no concrete way of telling whether HMRC will decide to take a closer look into the amount of tax you’ve declared in recent years. The taxman is coy about what triggers a tax enquiry, but independent tax experts do offer some clues and say suspicion arises for a number of reasons. This includes; submitting any tax returns late, declaring unusually low income, not having an accountant to look after your finances and even receiving tip-offs from angry employees and ex-partners.

It can be difficult to be completely prepared for this kind of thing because not many sole traders are experts in tax. They have enough on their plate as it is, and there’s a strong argument to be made about focusing on the job in hand. After all, that takes up enough time and energy.

That isn’t to say that self-employed tradespeople can afford to ignore the taxman’s increased scrutiny though – far from it. In addition to appointing an accountant to take a close look at your tax activity, it’s worth considering taking out tax enquiry insurance. This type of cover will often cover the cost of professional representation to defend you, along with access to advice from tax experts who specialise in self-employment.

With the government aiming to raise tax revenues going forward and taking aim at many self-employed tradespeople, it’s become increasingly important that these workers are aware of HMRC’s attitude towards independent workers and are in a position to take the right course of action.


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