Small firms face big fraud probe, says PwC

Tax investigations into the affairs of Northern Ireland’s sole traders and partnerships may dramatically increase, according to business advisors, PricewaterhouseCoopers (PwC).

A National Audit Office (NAO) Report, ‘Tackling Fraud Against the Inland Revenue,’ published earlier this year, says over a quarter of sole traders and 30% of partnerships pay, on average, £500 less Income Tax than they actually owe.

The Report suggests that an additional 22% of partnerships and 17% of sole traders may also be underpaying Income Tax by more than £1,000.

In both cases, the NAO says these underpayments represent potential fraud and should be investigated. The Report recommends that the Revenue extend the number and coverage of its prosecutions and use increased fear of detection to frighten offenders into paying the right amount of tax.

David Hill from PwC in Belfast said this will have far reaching implications for Northern Ireland smallest businesses: “Tax investigations are not just directed against big business and the black economy. The NAO report says small businesses regularly and deliberately underpay tax and the Revenue should increase the scope for both random and targeted tax investigations.

“Northern Ireland has a disproportionably high number of small companies and with the NAO telling the Revenue to tighten up on small company tax fraud, local businesses must ensure that they are scrupulous in accounting for all tax due. Nevertheless, we still expect a sharp increase in the number and intensity of tax investigations of local businesses.”

The Inland Revenue collected around £214 billion in direct taxes and National Insurance Contributions in 2001-02.

The Revenue relies heavily on out-of-court settlements in its investigation cases and only about 60 criminal prosecutions are brought each year, mostly against owners of small businesses.

However, the Revenue’s Special Compliance Office is has dramatically increased its activities in recent years, collecting an additional £337 million in 2001-02 solely from investigations of serious fraud.

(MB)