UK years away from making quarterly tax returns viable– warns small business lobby group
Ian Cass, Managing Director of the Forum of Private Business believes that the UK is years away from being able to cope with quarterly tax returns from all 5.4 million businesses in the UK as opposed to the 2.35 million that are on the Inter-Departmental Business Register (IDBR).
The Forum has estimated that the cost for businesses in fees alone will be double the cost for businesses of Real Time Information even if the reporting is fairly simplistic. Anything more complex will see significant costs to all businesses, not just non-employers and micro businesses.
The smallest firms are likely to be hit hardest by the changes – particularly those who do not use accounting software and/or do their accounts themselves. In total the Forum expect businesses to have to spend an additional 19% on external support to meet the proposed change with the external cost for all firms rising from just over £1,000 to £1,600.
For employers fees and the cost of software will rise from £2,900 to £3,400 with the cost internally of complying only increasing by about an hour a quarter once the changes bed in. Data from the Forum’s cost of compliance survey indicates that internal capacity for red tape is at its limit so this will increase the stress and anxiety for the business owner or a senior manager. For non-employers the amount pay to external operators is expected to almost double, this is a significant increase for some firms as a non-VAT registered non-employer has an average turnover of just £30,000.
“We simply do not feel that the infrastructure is there for this level of quarterly reporting, some parts of the country still do not have high speed broadband and the portal for reporting final year accounts is not robust enough as it is,” argues the Forum’s Managing Director, Ian Cass, echoing the view of the British Chambers of Commerce that HMRC is not ready for the changes.
“Tax administration is in many ways the worst type of regulation for small firms as the system is so convoluted and byzantine that they are unable to figure it out themselves, placing themselves in the hands of tax advisors, software companies and the HMRC. Yet it is the owners themselves who count the cost if anything goes wrong, so they have no control but total responsibility.
“A move to quarterly returns could be good for small firms if the country operated a tax system as disorganized business owners would be able to claim back a greater proportion of their expenses and give them a greater understanding of whether they are meeting their goals for the businesses such as making a decent profit, our members tend to believe that this is a really important element of their business.
“However the tax system is too complex and many firms already face disruption from the changes to dividend taxation. Also there needs to be culture change within HMRC so that they support businesses in this transition, make payment much easier and avoid using any changes as an opportunity to raise revenue or a “tax investigation funnel”.
“We feel that this is years away and would urge the government to put in firm foundations before embarking on this policy, a major simplification of the tax system is required, proper resourcing of HMRC and improved access to high speed broadband are the three main challenges, but there are others as well. We have already highlighted the problem of the digital only route for reporting and paying taxes at the highest level.
“Over 80% of our members feel that tax administration should be included within the programme to cut the cost of red tape, this legislation will cost businesses around £1.2 billion in internal costs and add around £2.6 billion directly to the bottom line from software licences, bookkeeping and accountancy fees. If all business bureaucracy was included in the aim to reduce red tape by £10 billion this measure alone would scupper the plan.” Ian Cass concluded.
ENDS
Notes to Editors
So far over 90,000 small business owners have signed a petition against the proposed changes. The petition can be found at https://petition.parliament.uk/petitions/115895
The Forum of Private Business highlighted the barriers to increased digitalisation in its recommendations for the Autumn Proposal as part of a wider reform of the HMRC and tax system.
If you would like to receive more information on the Forum's position please contact Thomas Parry on 07885 888085 or email thomas.parry@fpb.org