The Federation of Small Businesses (FSB) has demanded an apology from the Inland Revenue after it sent 100,000 letters to self-employed people.
The Revenue said it intended the letters to be helpful
The standard letters warn of a possible investigation by the Revenue because the recipient may have claimed too much in expenses and therefore not enough tax.
The letters were sent to self-employed people earning less than £15,000 a year, who had a high proportion of their turnover taken in expenses.
The Revenue has admitted that people sent these letters may have done nothing wrong. It said the letters were merely intended to help and inform people, enabling them to fill in their tax return correctly.
But the Federation of Small Businesses does not accept the Revenue's explanation for the 'disgraceful' letters which it said have caused a wave of anxiety and confusion. In particular the paragraph which says:
"We have identified an aspect of your return which may need particular attention. We want to help you get this aspect right first time, which may avoid the need for an enquiry."
Speaking to the BBC's Money Box programme, FSB spokesman David Bishop said:
"They assume that the letters are the opening shot of a full-blown Inland Revenue investigation. Obviously that causes a huge amount of concern. The letters have caused a wave of confusion and anxiety amongst self-employed people."
One Money Box listener, who wanted to remain anonymous, claimed his self-employed earnings were only £2000 a year. But after receiving the letter felt he had to employ an accountant which might cost him £500.
In a statement to the BBC the Revenue said the letters had been drawn up with the help and approval of accountants, and added:
"The letters are about enabling taxpayers to complete their returns as accurately as possible.
"Taxpayers who receive these letters are selected very carefully so that help is focussed on those who need it.
"Only a tiny fraction of the total self-assessment population will receive these letters."
John Whiting, a partner with accountants PricewaterhouseCoopers told the programme:
"The Revenue probably decided it wanted to be helpful, to point out to people things they could get wrong. But it has gone off half-cock.
"If you get a letter saying 'here is an area that may need particular attention', basically implying you have over-claimed expenses, that is really rather worrying."
And the FSB's Mr Bishop is adamant the Revenue must "set the record straight".
"We think that the letters are disgraceful. They have confused thousands of self-employed people. They should publicly apologise and write to the people who have received this letter.
Mr Bishop said that if the Revenue does not respond to the FSB's request its next course of action will be to refer the matter to Chancellor Gordon Brown.
John Whiting warned:
"The Inland Revenue have always had a look at the self-employed, it is a common area of attention, but this is a bit of ratcheting up."
BBC Radio 4's Money Box was broadcast on Saturday, 11 September, 2004 at 1204 BST.
The programme was repeated on Sunday, 12 September, 2004 at 2102 BST.