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Taxman is harassing firms says FSB chief

The tax office faced accusations of double standards over plans to target thousands of small businesses with spot checks on their paperwork - despite letting big firms such as Goldman Sachs off millions of pounds in tax.

Officials from HM Revenue and Customs with powers to fine small businesses intend to inspect up to 20,000 firms to see if they have adequate proof of expenses and income dating back years in a new drive set to begin in April.

The move was condemned by Conservative backbenchers and business groups who warned it risked bankrupting some businesses and harming the already depressed economy.

They said it went against a pledge by ministers to cut red tape for companies during the recession and added the arbitrary nature of the unannounced checks amounted to "harassment". "Despite the worsening economy, HMRC is launching this scheme regardless of the consequences," said John Walker, national chairman of the Federation of Small Businesses.

"We have spoken to HMRC and expressed our concerns about this a number of times.

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

Under the plans, up to 20,000 small businesses including restaurants, builders, manufacturers and IT companies will face spot checks on their record keeping.

They will be expected to show receipts for income and expenditure dating back years to back up their tax returns. Those who are unable to do so will face fines of up to £3,000 which business leaders warn could be enough to push some firms into insolvency.

During a pilot exercise last year, 12% of the businesses examined were judged to have record-keeping practices that were significantly sub-standard.

If the same percentage was found to be at fault in the full checks total fines could reach £15m.

While inspectors have room for leniency, the federation says that revenue officials take a far tougher line with firms unable to employ high-powered accountants to argue their case than with large companies.

The plan is also causing considerable unease among Conservative backbenchers - who believe it undermines David Cameron and George Osborne's pledges to support small businesses.

Priti Patel, the Conservative MP for Witham, said around 80% of her constituents work in small and medium-sized enterprises and she had dealt with numerous examples of what she described as "harassment" by HMRC.

"This is the persecution of small businesses at a time when they are already facing a very, very hard time," she said.

"The attitude of HMRC to small businesses is frankly disgraceful when they are blatantly doing deals with large firms which have allowed them to escape millions of pounds in tax liabilities. It seems as though HMRC sees small businesses as low-lying fruit to meet their targets. That kind of persecution is outrageous."


The fine to be slapped on small businesses for errors found by HMRC