Forum of Private Business
Avoiding the truth SMEs paying a high price
Phil McCabe, Media and PR Officer, Forum of Private Business, explains why the recent Tax Tribunal ruling on HMRC’s unfair levying of small business late payment fines raised concerns that SMEs are being treated as a cash cow
The recent ruling states that HMRC is deliberately delaying informing businesses of late payment of tax bills until fines have reached £500. Currently, small businesses which have not filed tax returns by the May deadline are not informed until September, by which time they are liable for four months’ late payment including a fine for late completion.
Despite HMRC’s assertion that it is not legally required to tell SMEs about late payment, the judge, Geraint Jones, QC, thought otherwise. For years Forum of Private Business (Forum) members have reported problems speaking with the correct HRMC department when trying to negotiate complicated tax issues, finding they are often passed around from pillar to post, making it increasingly difficult to meet ever stricter tax deadlines, leading to the build up of fines.
Increasing problems
SMEs continue to complain that HMRC is becoming more difficult to deal with and increasingly inflexible. Unfortunately, levying late payment fines and shoddy customer service are merely the tip of the tax iceberg for small businesses. Last year, HRMC rolled out a pilot small Business Records Checks (BRC) scheme to analyse SME tax performance and discovered that just 12% showed ‘seriously inadequate’ paperwork.
Amid strong criticisms that small firms are being unfairly targeted when tax avoidance by large companies is largely ignored, the Government’s response has been to suspend its record checks scheme, which came under fire for its sector-by-sector based scrutinising, often with business owners complaining they feel guilt has been presumed from the start. However, although the present scheme will be delayed, ministers plan to reintroduce an improved version at some point in the next
tax year. Those businesses which have experienced HMRC at first hand are unlikely to celebrate.
If it does go ahead surely the 44% of British small firms found to face difficulties with record keeping, amid a rising tide of red tape that the Government has already pledged to reduce, should be given a helping hand rather than face potential fines of £3,000. Many small traders feel they are being deliberately targeted to fill the gap in the nation’s tax revenues caused by massive tax evasion and avoidance, totalling between £25 and £46 billion per year. However, HMRC is disputing it targets small businesses unfairly to balance the nation’s books.
In his reply to a recent letter highlighting their concerns over HMRC’s treatment of SMEs, David Gauke, MP and Exchequer Secretary, sought to reassure the Forum that small businesses were not being victimised. Mr Gauke acknowledged that the service provided to customers over the phone by HMRC was not of a high enough standard, and stated his commitment to improving the overall quality of services offered to SMEs. He also claimed that the BRC scheme is not intended to penalise SMEs, but rather to address and solve poor record keeping, errors and inaccuracies in tax returns. In fact, according to Mr Gauke, HMRC does not intend to issue penalties except in the most
“ ”
HMRC does not intend to issue penalties except in the most extreme cases.
extreme cases, e.g. where records have been deliberately destroyed.
Heavy burden
The Exchequer Secretary’s words are reassuring; however, such heavy scrutiny of SMEs is concerning, especially when 88% of business tax red tape already targets SMEs. This is a major issue for SMEs, and, according to the latest Forum ‘cost compliance survey’, tax administration has become their main regulatory burden, costing £5.1 billion per year. The problem is further compounded by small businesses inability to afford large teams of tax lawyers. When mistakes do happen, many still feel fines all too inevitably follow. Insult is added to injury when the track record of larger companies is taken into account.
In his letter to the Forum, David Gauke stated that HMRC aims to ensure that big businesses pay the tax they owe, going on to add that over half of HRMC’s additional compliance revenues came from large businesses - £7.88 billion out of £13.9 billion. However, recent media reports have reported that FTSE 100 companies are in fact avoiding paying massive amounts of tax. In 2010, HSBC paid only £236 million in tax on European profits of £2.65 billion; it should have paid £742 million. Furthermore, HRMC appears to have waived £10 million interest on Goldman Sachs bankers’ bonuses.
The Government has acknowledged that this is a major issue and has promised action. In January, both David Cameron and Nick Clegg stated the Government’s desire to crack down on big business tax avoidance and evasion. But the best advice, until real reform of the tax system occurs, is that small businesses should ensure they employ watertight accounting practices and display good financial records. Help is out there.
March 2012 Business Moneyfacts ® 11
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124