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Issue:- 20 January 2010

Firms advised proper book keeping is essential to avoid £3,000 fine

SMALL businesses say HMRC should get its own house in order following reports of poor service.  The Forum of Private Business is warning small firms to keep proper financial records or face fines in excess of £3,000.  Despite recently promising a ‘light touch’ approach to mistakes made in the process of implementing the 2.5% VAT rise, HMRC is planning to clamp down on firms for what it calls ‘significant record keeping failures’, as well as probing likely unpaid taxes.  Firms are expected to keep records going back at least 6 years. Information including invoices, bank statements, receipts and cheque stubs will have to be supported by up-to-date accounts books and detailed analysis.  The Forum’s Accountancy Adviser, Matt Holmes, who is the Managing Director of Liquid Accounts Ltd, warned firms to be prepared.  "HMRC is planning to clamp down on small businesses tax payments and record keeping from the middle of 2011.  But it is important that firms act now to get their houses in order, for many this will represent a lengthy administrative headache. Obviously entrepreneurs will want to make sure they are not caught out and hit in the pocket at a time they can least afford it, but the key is to focus on creating business intelligence that you can use to your benefit, rather than just keeping records for the tax man because you have to.”

Writing in the Forum’s member newsletter, Mr Holmes’ 3 top tips to business owners for better book keeping; and avoiding a hefty fine are:-

1. Seek advice – if you are struggling for time or don’t have the expertise make use of freelance bookkeepers or virtual assistants. There will be a cost involved, but you will be buying peace of mind and precious time to concentrate on making money for your business.

2. Embrace mobile technologies – there are smart phones and numerous apps to enable you to keep on top of your finances, including one that allows you to photograph and record expense receipts.

3. Consider new, cost-effective online accounting packages - that allow you to store and analyse much more information compared to older desktop programmes and manual filing systems.

Mr Holmes added:- “HMRC’s decision to clamp down on struggling firms rather than provide further support to help them is unfortunate but it is a fact that small businesses are much more likely to succeed by keeping good accounting records. It allows them to keep on top of their cash flow and plan ahead.  Most online accounting packages will let your accountant and bookkeeper access accounts remotely, which gives you the choice of doing as much or as little of your own accounting as you’re comfortable with or can afford.   It also means that they can be on hand to help you solve problems or rectify mistakes and to give you advice throughout the year and not just at your year end. And doing things this way might also save you money on your accounting bills as there will be less for your accountant to do at key times.”

Support for small firms - In 2008, HMRC launched its Business Payment Support scheme, which has recently been extended for the duration of the present Parliament. Popularly known as ‘Time to Pay’, the scheme allows struggling businesses to defer tax payments.  However, recently business owners have expressed concerns that HMRC is taking a harder line despite the fact that they are willing; but unable, to pay.

Forum member Geoffrey Rogers, of Geoffrey Rogers Chartered Accountants and Tax Consultants in Plymouth, believes small firms – charged with creating jobs and driving economic growth - want to comply with their tax requirements but are not being given enough support to do so.  He said:- “With banks still not lending, late payment on the up and other factors hitting cash flow, many small businesses are still facing an incredibly tough financial climate and signs that HMRC is set to pull the rug from under them are worrying. It’s typical that HMRC is going to fine small businesses for not keeping ‘proper records’ when it does not offer any real definition of what this means. Without clarification, and certainly without better education, in many cases, fining small businesses for poor record keeping would be like punishing a child with learning difficulties for poor reading. Once again we are looking at the big stick being favoured instead of the carrot, which is, I’m afraid, typical of HMRC’s current approach."

HMRC’s poor service - Many entrepreneurs will be dismayed that HMRC is taking a tougher approach to small business administrative issues when it appears to have many of its own.  The Forum’s submission to the Treasury sub-committee inquiry into ‘the administration and effectiveness of HMRC’ identifies numerous weaknesses in the organisation’s service. Forum members believe HMRC’s administration of the UK’s tax system affecting small businesses is slow and inefficient, with many online systems deemed too complicated, and have called for reforms to PAYE, the speed of HMRC’s internal procedures and the treatment of customers. 

The Forum are also calling for major root and branch simplification of the tax system to make it easier for small businesses to negotiate their tax responsibilities, which HMRC says is its ‘main aim’.  In addition, the Forum has recently urged the Government’s probe into tax avoidance to address a VAT loophole where large companies are able to relocate to the Channel Islands in order to avoid paying VAT, distorting competition with smaller firms and amounting to tax abuse.


CLAIRE, 22 from Southport has been selected as one of the 18 finalists for the Miss Fresh Photographic competition which is being held by the Miss England organisers. Claire is a Sales Advisor, but in her spare time she is a keen dancer who has achieved many awards in dance, as well as her Duke of Edinburgh and RAF Marksman award. She is hoping to win the title and prizes worth over £500 including a place in the Miss England semi final next June at Champneys Springs. Other prizes include £100 worth of make up from Helen-É Cosmetics, gift voucher from and 1 year membership to Every year, Miss England is selected for the finals of Miss World which has a first prize of $100,000. Claire needs your support to help win the Miss Fresh Photographic Heat Three title. You can vote for Claire by texting 05Claire TO 84205 or vote from a landline which is:- 0901 6561500.  Text votes costs 60p plus standard network charge. Votes made from a landline costs 61p from a BT landline.  The voting line opened on Tuesday, 11 January 2011 at 12.00 noon and will close on Wednesday, 2 February 2011, at 12.00 noon. For this particular heat, the top 6 girls’ applications will be put forward to a professional judging panel to find a winner to put into the Miss England Semi Final!

Business owners so frustrated by tax laws, they would pay to have them simplified

SOME small business owners are so frustrated with the complexity of the UK tax system that they would pay more just to see it simplified, new research has found.

57% of business owners surveyed by the Forum of Private Business said they would be willing to pay more tax in exchange for a simplified system; providing the system led to greater rewards.  Meanwhile, 50% said they would be prepared to pay more under a simplified system if that system cut down on tax avoidance among their competitors. Tax avoidance is typically carried out by bigger businesses with the resources to exploit geographic loopholes.  And 45% of business owners on the Forum’s Tax and Budget member panel said they would tolerate a higher tax bill under a simplified system if it was accompanied by a general reduction in legislative red tape.

The findings come after the Coalition Government announced the creation of the Office for Tax Simplification last summer. The Office is a Treasury department which is currently working on tax simplification proposals ahead of the March budget.

Forum chief executive Phil Orford said:- “The cost of complying with Britain’s hugely complex tax system is such that, if simplification and profitability result, most businesses believe a little more tax would be a price worth paying.  Clearly, if the Government is serious about stimulating small business growth, streamlining tax administration must be a priority.  In addition, small businesses are deeply concerned that the tax system favours large companies and is deeply unfair. Plans to clamp down on tax avoidance, for example, seem to fall short in several areas.  How can the Government continue to allow major retailers to set up shop in the Channel Islands to deliberately undercut small shops and internet businesses by exploiting a VAT loophole that clearly distorts competition and leads to tax abuse? Tax policy directly influences business behaviour.  We desperately need reforms that incentivise small business growth by freeing up time and money to invest in future planning and expansion, rather than a system that impedes it, as the present one does.”

Small business owners have strongly differing views concerning the purpose of the tax system. At 59%, many respondents felt that the priority of tax is simply to raise revenue to pay off the UK’s national debt, however a significant 33% said the tax system should prioritise the regulation of economic behaviour.

Business owners also have very mixed views of the recent VAT increase. 48% of respondents felt that the VAT rise would create minimal problems for their business but 21% said it would have a significant impact. Additionally, 9% believed it would give some competitors an unfair advantage and 6% considered the administrative burden associated with price adjustment in light of the increase to be a barrier.

78% of businesses felt that the tax system deters smaller firms from employing due to the complexity of payroll taxes and the repeated increases in National Insurance. A further 45% said the tax system hinders financial planning and 41% said it impedes prompt payment.

57% said the tax system should be incentivized to allow businesses to employ more people. Panel members also said they want to see a reduction in unemployment and felt that the Government should reward individuals who are prepared to work by increasing the number of workers taken out of the tax system, as well as taking measures which would encourage businesses to employ. Respondents also said they would like to see taxation rates for employees and the self-employed more closely aligned in any reform of the IR35.

In response to the panel findings, the Forum plans to investigate the possibility of a radical overhaul to the tax system.  This could include the abolition of business tax reliefs and allowances if corporation tax were to be cut to internationally-competitive rates and employment taxes (particularly employers’ National Insurance Contributions) were significantly reduced or abolished.

The Forum will also continue lobbying against tax avoidance schemes exploited by bigger businesses, such as the Low Value Consignment Relief loophole for goods mailed from the Channel Islands.

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