SMEs and tax is a complex subject, and small businesses don’t have to fall foul of HMRC to end up having to manage some significant costs because of its attentions. How can firms afford the costs? Alternative finance can help.

New research from insurance company PfP has revealed that a large proportion of smaller businesses find HMRC tax investigations too insensitive and disruptive. According to the study, which was commissioned by HMRC, 52% of firms found investigations too heavy handed and 56% believed that HMRC did not do enough to minimise disruptions in relation to the cost, time and effort required by inquiries.

It is easy to sympathise with small business owners, especially if tax investigations reveal that all is as it should be. It’s a pat on the back for a business but, at the same time, the business has had to give time and resources to facilitate the inquiry. And it seems unlikely that all small businesses have insurance in place to cover such costs.

So, should HMRC back off from small businesses? Well, at the same time as SMEs are complaining about insensitivity and disruption, HMRC are pointing out that small businesses are largely to blame for the country’s tax gap. The tax gap is the difference between the tax that should be collected by HMRC and the actual amount that is. The latest data from HMRC show that SMEs are responsible for 41% of this gap, worth £71 billion. This is a pretty significant amount.

There is obviously a balance to be struck here. Encouragingly, the recent decision by HMRC to scrap new entrepreneur tax relief rules suggests that it is listening to the small business sector. The PfP research may well yield positive reform for small businesses.

And of course, it should be mentioned that there are firms that rightly attract the attention of HMRC, whether for tax or other matters. For example, according to news reports, HMRC has levied record fines on employers, at £1.97 million and counting, for failure to apply the rise in the national minimum wage and pay employees fairly. The combination of investigation costs and a fine is a sizeable hit to take, even for larger firms.

Regardless of what brings HMRC to the door, the visit always comes with a bill. So, how can under-pressure small business owners manage the costs? Alternative finance can help. The likes of invoice finance, asset finance, peer-to-peer lending and crowdfunding offer SMEs an alternative means of accessing much-needed funds for investment or of safeguarding cashflow.

This is how a Sussex SME used peer-to-peer lending, through a commercial finance broker that specialises in alternative finance, to get the capital to buy new equipment.

Of course, new equipment is just one example. Bringing it back to HMRC, tax and possible investigations, capital could be spent on resources, such as personnel who could help ensure that day-to-day operations continue to run smoothly while senior staff or the owner deals with HMRC-related matters.

Just because a business is run well doesn’t mean that HMRC won’t turn up on the doorstep. To manage the costs involved, whatever the circumstances, small business owners need to be aware of all the funding options available to them, and they include alternative finance.

To find out more about A&T Business Associates services, contact Steve on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.