Forum slams HMRC’s treatment of small businesses

Published:  06 January, 2012

UK: The Forum of Private Business is warning firms to pay their tax bills on time or face large fines, amid criticisms that HMRC’s paperwork spot checks regime is targeting them at the expense of large companies.

The Forum has written to David Gauke, the Exchequer Secretary to the Treasury, to complain about HMRC’s ‘harassment and mistreatment’ of small businesses, including imposing steep fines for even slight delays in tax bill payments as well as records errors or omissions, while at the same time agreeing ‘sweetheart deals’ with some of the UK’s largest companies.

Recently the Public Accounts Committee estimated that unpaid taxes from big businesses could amount to more than £25 billion, prompting the Prime Minister, David Cameron, to pledge action on tax avoidance.

However, in September 2011, following a pilot exercise in which 12% of firms displayed ‘seriously inadequate’ paperwork, HMRC extended its small business records checks project, meaning 20 000 firms are in line for visits from the taxman in 2012-13.

In addition to facing potential fines of up to £3000 for records deemed inadequate, firms are being forced to negotiate ever more costly red tape at a time the Government is pledging to reduce bureaucracy.

The not-for-profit Forum’s latest ‘cost of compliance’ Referendum survey, carried out in July 2011, showed tax administration is now the main regulatory burden for small business owners, leaving them with a bill of £5.1 billion per year.

While HMRC’s SME strategy covering 2012-13 and 2014-15 warns of an increase in ‘potential rule breakers’ – estimating 28% of SMEs could be found to have poor records – it recognises that 88% of business tax red tape falls on SMEs.

The Forum is arguing HMRC’s clampdown flies in the face of the Government’s plans to reform small business regulation in order to free firms to act as a catalyst for economic growth.

The pilot record checks scheme showed 44% of small firms experience problems with record keeping. The Forum believes these struggling businesses, which are facing up to extremely difficult trading conditions yet are expected to create jobs and drive growth, should be offered better advice, guidance and support rather than threatened with steep fines, which are also being imposed on small firms forced to pay their tax bills late as a result of cash flow difficulties.

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