Small retailers in the country are being accused of tax evasion, states a report today (9).
According to National Audit Office (NAO), which monitors tax and spending by the government, the trail of tax debts left by small retailers was widespread and increasing every year. Chains of retail shops are growing quickly while paying almost no tax and then becoming insolvent without settling their debts with the tax authority, leaving the government out of pocket, stated the body.
The NAO added the situation had worsened significantly since 2011 when companies were allowed to register online with Companies House, including from overseas jurisdictions. HMRC estimated that small businesses accounted for 81 per cent of the £5.5bn lost due to tax evasion in 2022-23, up from 66 per cent in 2019-20, The Guardian reported.
The NAO said retailers had been able to process payments without declaring them, a practice known as electronic sales suppression (ESS). Types of sales suppression include creating “dummy” sets of accounts, or running tills on training mode. The businesses then go bust to avoid paying tax debts.
In a scam known as phoenixism, the rebranded shops then begin the process of trading again, often with a slightly different name, earning the owners millions of pounds in tax-free profits. HMRC estimated that phoenixism alone accounted for 15 per cent of its tax debt losses in 2022-23 – equivalent to more than £500m.
Gareth Davies, the head of the NAO, accused HMRC of lacking an “effective strategic response” to a form of tax evasion that has been growing among small businesses.
“Its assessment of risks has given too little emphasis to widely used methods of evasion such as sales suppression and phoenixism. It has also failed to use new powers to tackle tax evasion.”
He added: “Tackling tax evasion is not a straightforward task. But real opportunities exist for HMRC to work more systematically across government to reduce it. Tighter controls and more compliance work could raise significant sums and improve value for money.”
Labour had pledged before the election to crack down on “dodgy” candy stores, which had notably proliferated on London’s Oxford Street.
The campaign charity Tax Justice UK said HMRC had suffered from many years of underfunding and outdated IT systems that hampered its efforts to tackle tax fraud.
Sara Hall, the charity’s deputy director for external affairs, said: “It is no wonder that billions of pounds of tax is evaded each year. Providing the tax office with the resources it needs will enable it to collect significant sums that can help repair public finances and invest in the NHS, local councils and the key services we all rely on.”