THE taxman is coming under fire from small businesses for targeting them at the expense of large companies owing billions in unpaid taxes.

The criticism of HM Revenue & Customs (HMRC) comes from the Forum of Private Business (FPB), which said that small firms were facing a rising tide of red tape.

It spoke out after allegations that HMRC’s paperwork spot checks regime is targeting small businesses rather than their larger counterparts.

It comes weeks after the Public Accounts Committee estimated that unpaid taxes from big businesses could amount to more than £25 billion.

But in September last year, HMRC extended its small business records checks project so around 20,000 small firms will face a visit in 2012-13, despite a pilot exercise showing that only 12% of firms displayed seriously inadequate paperwork.

The FPB has now written to David Gauke, the Exchequer Secretary to the Treasury, to complain about what it said was harassment and mistreatment of small businesses, including imposing steep fines for even slight delays in tax bill payments, as well as records errors or omissions, while at the same time agreeing sweetheart deals with some of the UK’s largest companies.

Chief executive Phil Orford said: “Small businesses want to keep proper records but struggle with the significant administrative barriers that exist in the UK.

“They also want to pay their tax bills on time but the reality is that many firms are struggling with cash flow in extremely tough economic conditions – yet HMRC is being completely inflexible.

“Entrepreneurs are crying out for a better tax regime that supports their ambitions and is conducive to growth, not one that provides constant hurdles to overcome and punishes them disproportionately.

“Operating such a strict, punitive small business records checks regime while effectively allowing large companies to do as they please is completely unfair.

“Given that the project is creating so much additional red tape, the Government is in danger of seriously undermining its own deregulatory agenda and damaging small firms, particularly in the present economic climate.”

The FPB’s own research shows that small firms consider tax administration to be their main regulatory burden, which costs the sector around £5.1 billion annually.

HMRC’s pilot record check found that 44% of small firms had experienced problems with record keeping. Firms are required to keep records going back at least six years, including invoices, bank statements, receipts and cheque stubs which also must be supported by up-to-date accounts books.

Rather than threatening steep fines, the FPB said the taxman should be offering better support and guidance to small businesses.