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According to a study carried out by HM Revenue & Customs, 35 percent of small businesses are potential tax evaders, believing that tax evasion is a common practice and widely accepted. HMRC estimates that 7 percent of Small and Medium Enterprise’s deliberately evade tax.

With £900 million invested by the government for the purpose of tackling tax evasion and avoidance, HMRC is cracking down, especially on SMEs. The aim of the department is to increase revenue by £7 billion a year over the next four years. The tax gap which is the difference between the amount that HMRC believe it will collect and the actual amount collected, of £42 billion a year is thought to be due to tax evasion.

The research indicates that 93 percent of SMEs want to pay the correct amount of tax and don’t practice tax evasion. HMRC is offering support to businesses and want to reduce the burden of administration. The director-general of business tax, Melanie Dawes insists that HMRC is not using heavy handed tactics to prevent tax evasion, and genuinely want to help customers to pay the right amount of tax.

The most common form of tax evasion is not putting transactions through the books, and not deducting tax and National Insurance from the wages of employees. HMRC will commence inspections of business records, to ensure that they are compliant and kept in a timely manner. Initiatives have already been launched to target sectors where tax evasion is high risk. Plumbers, medical profession and restaurants have already been targeted.

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