Taxman Gets Tough with Small Business; after the Sweetheart Deals with Big Companies, HMRC Plans Checks and [Pounds Sterling]3,000 Fines for Missing Paperwork

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Byline: James Chapman Political Editor

TAX inspectors are threatening tens of thousands of small firms with fines if they fail spot checks on their paperwork.

The HM Revenue & Customs crackdown comes despite a Government pledge to cut red tape and regulation for small businesses.

There has also been controversy over claims that inspectors have let large firms such as Goldman Sachs and Vodafone off millions of pounds in tax.

Tory MPs say the proposed blitz on small firms is a disgrace and must be dropped.

HMRC has been piloting the 'business record checks' in eight areas. Inspectors trawl through company paperwork dating back several years looking for what they deem to be inadequate proof of expenses and income.

Firms found to have failed to keep or preserve records 'in real time' can be fined up to [pounds sterling]3,000. The pilot projects suggest that around 12 per cent of firms would fail the audit.

Under the HMRC's plans to expand the checks, as many as 20,000 small businesses will face demands to show receipts for income and expenditure. Those who are unable to do so will face penalties, which business leaders warn could push some into bankruptcy and hit the economic recovery.

John Walker, national chairman of the Federation of Small Businesses, said: 'Despite the worsening economy HMRC are launching this scheme regardless of the consequences.

'We have spoken to HMRC and expressed our concerns about this a number of times. But as far as they and ministers are concerned it is an absolute policy aim to make this happen.

'There is a huge difference between the rhetoric of the Government about helping small businesses and what they're doing in reality.'

Tory backbenchers are also demanding a U-turn - claiming small firms are being treated more harshly than multinationals.

A damning report from MPs last month claimed Britain's biggest firms owe the taxman up to [pounds sterling]25.5billion, but are regularly let off the hook. HMRC fiercely denies this.

The public accounts committee accused tax authorities of having a 'far too cosy' relationship with corporate giants, who are repeatedly allowed to cut their tax bills or avoid paying interest.

Conservative MP Priti Patel accused HMRC of harassment, adding: 'The attitude of HMRC to small businesses is frankly disgraceful at a time when they are blatantly doing deals with large firms which have allowed them to escape millions of pounds in tax liabilities.

At a time when small businesses need all the help they can get, the attitude of HMRC seems completely counterproductive. …