In a worrying move, HMRC has been writing to a number of tradesmen informing them that the figures submitted in their tax returns do not compare with the results filed by their competitors and/or the benchmarks set by HMRC.
For example, we have learned that HMRC expect Painters and Decorators to return a net profit percentage between 59% and 79% and presumably anyone outside of those limits can expect a closer inspection from HMRC.
Whilst benchmarks may have their use, they must be exercised with extreme caution and there could be any number of reasons why a net profit ratio may differ from the norm. For example, the weather conditions, the health of the worker, the competition within the area, whether the tradesman works mainly for the public or for other businesses.
What concerns me most is that on receipt of one of these letters the tradesman is immediately going to think that either he or his accountant has done something wrong and will start to worry. Results outside of HMRC benchmarks are bound to instil a feeling within HMRC of guilty until proven innocent.
