“Delay tax changes or small businesses face a perfect storm”

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Small businesses and the self-employed face filing quarterly tax updates online by 2020

MPs today called on the Government to delay implementing new tax rules for small businesses, amid fears they could lead to a “perfect storm”.

SNP MP Hannah Bardell said business owners had revealed their fears to her over software glitches alongside a lack of support for company owners and sole traders.

She said they raised questions about the proposed new quarterly tax updates being implemented by 2020, at the same time as more than £700m in cuts are being planned for HMRC.

The Livingston MP said the service is facing staff cuts at a time when small businesses are due to implement a new system, and may need to call HMRC even more often.

Small firms and sole traders are also dreading the extra work quarterly updates will bring. She called it a “perfect storm”, and added: “One business owner told me ‘this is my worst nightmare come true’.”

A debate before the petitions committee was triggered by a 110,000-signature petition organised by small business owner Paul Johnson. The petition called for a re-think of the timescale for proposals announced in the Autumn Statement by Chancellor George Osborne – that small businesses and the self-employed should be filing quarterly tax updates online by 2020.

Ms Bardell said the number of signatures showed the strength of feeling among small business owners and the self-employed.

Oliver Dowden, the Conservative MP for Hertsmere, opened the debate on behalf of petitioners.

He said there is cross party backing for moves towards the digital overhaul of government systems, but there are serious concerns raised by small businesses and the self-employed about how the new quarterly reporting system would be implemented, what sanctions if any would be applied to those who failed to comply with the new system, and the extra cost and burden the system could end up placing on small businesses.

Some areas of the UK  – especially rural parts of the country – do not have adequate broadband infrastructure to cope with such a system, he said.

He stressed: “Small business is the backbone of our economy, employing thousands of people.”

The committee was told that ahead of today’s hearing, 565 separate contributors had sent 1,285 tweets to the committee raising concerns and fears.

MPs said constituents had raised questions about whether sanctions would be applied over failure to report quarterly, and how quickly after the deadline, and the potential for increased accountancy fees or loss of revenue from time spent doing their own accounts.

Hove’s Peter Kyle, who started and ran his own business before becoming a Labour MP, stressed the uncertainty self-employment brings.

“People who become self-employed make personal sacrifices in order to drive our economy,” he said, adding many had periods of low income.

“Growth is not linear,” he said, with uncertainty in income not just being confined to the start of a business. The legislation proposed would have a big effect on smaller, micro businesses who are already facing a disproportionate ‘hit’ with new corporation tax rules by comparison with big business.

Mr Kyle also referred to problems faced by those using HMRC services at the moment, and said some small businesses have faced a “lamentable” service.

“If a system is thoughtful, intuitive, and in the interests of business, small businesses usually flock to support it. Something has gone wrong here.”

Morecambe and Lunesdale MP David Morris, the Government’s self-employment ambassador, said he and other MPs would broadly welcome a move towards a digital future, but questioned how new rules would be introduced and implemented.

“We have got to get this right from the start. This must not turn into a Big Brother turnover predictor,” he said. “This must not become a stick with which to beat the self-employed.”

Incomes can fluctuate, particularly when the industry involved is seasonal, and cash flow can be unpredictable. He said HMRC rules must take that into account, and called for delays to the timescale to ensure small business concerns are addressed.

MP for High Peak, Andrew Bingham, said in rural areas, there are still major problems with accessing fast broadband, and some areas do not yet have access to 4G phone signals.

He added: “I worry about ‘regulation creep’ – that plans for quarterly updates could end up becoming quarterly tax returns or quarterly payments.

“Small businesses are the engine room of the economy. I fear we will seize up that engine room.”

East Antrim MP Sammy Wilson said he knows of a number of constituents such as plumbers, carpenters, and builders, who are small businesses and do not operate online. Online updating would be a major issue for them, he said.

“These processes never go smoothly,” the Democratic Unionist said. “For some businesses, it could be a case of whether they survive.”

There is also cynicism about the relative burdens on small and big businesses, he said.

“We must not be seen to impose more work on small businesses while there is seen to be less of a burden on big business,” he added.

The committee was told many MPs would have no issue with giving some small businesses a “nudge” towards operating digitially, but that has to go hand in hand with simplification of the process.

The hearing was told that for many businesses, filing tax returns digitially was less of an issue than the “seismic” change of updating HMRC every quarter, and the extra workload that would create.

Financial secretary to the treasury David Gauke, whose brief includes small business taxation, said the Government is launching a full consultation in the Spring which is due to end in December, and which will include bodies like the Federation of Small Businesses. Many of the issues raised in the petition would be addressed then, he added.

Mr Gauke stressed that the plan would involve quarterly updates to HMRC, rather than quarterly full tax returns, but when asked if this could be the end of the traditional annual tax return, he said: “Yes.”

He said free software would be available for small businesses and the self-employed, and said any sanctions would be implemented only after a bedding-in period.

He said he did not expect the level of sanctions to match the current level for those who fail to file annual tax returns, for example.

Mr Gauke said 30,000 businesses have already downloaded apps for recording data, and he made no apologies for the Government’s wish to make HMRC the most technologically advanced tax collection system in the world.

Mistakes mean £6.5m in taxes goes uncollected annually, and the new system aims to reduce errors and reduce that figure.

He said the system would be “extensively tested” before it is rolled out, and that businesses would have until 2020 before it was fully implemented.

Read more about the petition here.

MARIA WILLIAMS IS A JOURNALIST, COPYWRITER, PROFESSIONAL BLOGGER, AND PR FOR SMALL BUSINESSES. Visit her website www.wordsyoucanuse.co.uk

 

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