More small and medium businesses (SMB) will have their records scrutinised by HM Revenue & Customs (HMRC) as its record-checking programme has been extended. However, penalties for inadequate records will only be issued in the most extreme cases until the process is refined. Full guidance will be issued before penalties of up to …
Smaller businesses (the ones who actually pay tax in the UK) will get it in the neck and be squeezed until their pips pop. Meanwhile the he largest avoiders of tax will be allowed to continue getting away with evading paying billions and get 'personal' deals that vastly under estimate their actual liabilities.
There is something wrong with this picture. Hartnett needs to go.
While their boss "Hospitality Dave" Hartnett continues to lunch expensively and well while making sweetheart deals with the likes of Vodafone and brokering misleading nonsense like the recent Swiss banking "deal".
While this exercise will no doubt help businesses produce apparently "adequate" records I suspect that increasing numbers of those records will continue to be entirely false.
HMRC have lost any credibility they may once have had and have demonstrated once and for all that the UK government has lost all moral standing to levy taxes on the general population.
People forget that income tax was only reintroduced in 1842, following its initial introduction and later abolition by Pitt the Younger in 1798 to fight a number of wars.
If the war-mongering filth running this country would stop spending billions blowing up other people's countries then perhaps - just as back then - income tax would not be necessary.
I'm in Edinburgh, and self-employed. I was one of the folks HMRC picked for their pilot business record check scheme. Seriously, it *should* be no big deal. They come in, ask you some questions about how your business cash flow works, then how your record keeping works. As long as you're keeping full records of income and expenditure, and receipts as evidence of expenditure, you've got nothing to worry about.
In my case it was "I enter all my expenses in this spreadsheet and file the receipts themselves in this envelope, and I enter all my income in this other sheet and hang on to my bank statements, and once a year I throw it all at my accountant." And that was pretty much all it took to get a clean bill of record-keeping health signed off by HMRC.
This stuff isn't rocket science; I reckon it's really about shaking trees and seeing if anything falls out, in the shape of people who can't be bothered to do even the minimum.
... who can't be bothered to do even the minimum.
That would be me then.
I send everything to the accountant and he tells me what cheques to write.
When they wanted to inspect me I simply picked up a couple of boxes from the accountant and let them go through that. They were quite happy with the arrangement.
> "I enter all my expenses in this spreadsheet and file the receipts
> themselves in this envelope, and I enter all my income in this
> other sheet and hang on to my bank statements, and once a year
> I throw it all at my accountant."
Charlie, out of curiosity how well do you think that would have gone down with them if you had not done the "throw it all at my accountant" bit?
I have recently been asked to prove that I don't need to be VAT registered. Ironically, if I did VAT-register I would get a smallish net refund; my reasoning is that the agro involved in recording VAT outweighs the payback. On the other hand, if I'm going to be required to provide essentially the same level of information each year anyway in order to justify not being registered, then I might as well register and save myself some money...
How are they with scanned images + PDFs ? I've been trying to avoid paper invoices...
Check out "Flat Rate Scheme for VAT"
It's not for everyone, but if you qualify, it adds a tidy sum to your cash flow.
@ Simon Lyon
I'm all for a smaller state, but in order to abolish income tax we might need to stop fighting wars *and* make ordinary people revert back to the standard of living they had in the 1800s.
That's going to happen anyway-
for the bod in the street...
the tax man aims for the easy targets. This will force a number of SMB's into bankruptcy but the tax man will get his dosh first, so forcing a lot of small businesses is for the tax man "good business practise". The objective is to force the businesses our of business!
Next year when there are N million more unemployed the tax man wil be have to aim slightly higher.
The best advice to anyone running a SMB between 5 and 100 employees - it is time to cut your losses and leave - if you can!
"The tax gap is the difference between the tax that in theory should be collected by HMRC and the amount that is actually collected."
Is this tax that should be paid in theory if everyone pays the maximum giving their income rather than using legitimate means to minimise their tax? I'm just wondering how realistic this supposed amount really is.
Most SMEs I know are acutely aware of their ‘trading position’ and ‘profitability’ without having nice neat records to tell them, as they try to get enough work in to pay next weeks wages and not go bust.
What they do not need is some twonk in the Tax office, who is being paid a monthly wage out to the taxes SMEs generate, telling them to devote yet more unproductive and unpaid time to produce nice neat records to make his live easier.
Some other stuff we did without in 1798
About the only constant is that we are still fighting in Afghanistan.
But apart from sanitation, healthcare, roads*, free hospitals, free schools and benefits, what has the government ever done for us?
* for some definitions of the word "road"
If the big guys are too frightening pick on the small ones
So the big guys shuffle their profits to neat offshore havens, pay their ceos 'nothing' and their wives a fortune for doing nothing, and have complex accounts, accountants and all manner of other means to avoid paying anything like their share...
The IR won't pick on them, instead it will go rifling around one man bands threatening them with fines, big sticks, extra tax and anything else it can get away with.
Will this help the small business employ some of the 25% of this countries workforce that arent' working? No, it will drive small business out of business.
It's all about your legal cover
Big companies have large legal teams staffed with the best money can buy.
All I can suggest is taking out some decent legal expenses cover (tax deductable), and letting any over officious inspector know that if they start nit picking they can look forward to facing a proffesional legal and accounting team.
Not just income tax
Don't forget that also into the big pot goes the NIC on PAYE, both the employers and employees contributions. Then there is corporation tax on the profits of a company, then there is the VAT, then there is the business rates which is currently about 45% of the rent of the business premises per year.
The easy targets are the many honest small businesses. They are big enough to be visible - the ones that never report or contribute are harder to find and also harder to investigate. The bigger ones are also in a better position to structure their finances.
Time to prepare for another eye watering investigation.
HMRC would do better to fill the tax gap if they identified the people and businesses that they don't have a record for.
@ Just Thinking
I'm not advocating ceasing of all taxes - eg National Insurance reverting to its original purpose of funding the health service would be reasonable. Nor am I adverse to local taxes paying for services actually delivered to people and a sensible sales tax.
My point is that many more billions than the debt we currently face are squandered, every year by politicians or stolen by financiers or crooks such as the rail companies.
In such circumstances the government has no moral right to a tax on my income and I will avoid it wherever and whenever possible.
As long as you avoid and not evade then I don't have a problem with this philosophy.
SMEs will pull us out of recession...
If they don't go bust first.
Perhaps the "Tax Gap" would be a little narrower if the head of the Inland Revenue spent more time in the office and less time in the restaurant with Vodafone?
Own the taxman 3K and the tax inspector will think, "That’s the price of a nice holiday in the sun"
Own the taxman 10K and the tax inspector will think, "That’s the price of a nice car"
Own the taxman 100Million and the tax inspector will think, " . . . . . . . . . . . . . . . . . how can we help you sir?"
This is a variation on Parkinson's Law of Triviality, people have no opinion on the building of a nuclear power plant as it is such an expensive, complex project; however everyone has an opinion when it comes to building a bicycle shed as it is a MUCH smaller and easier to understand project.
It's also the reason why tax inspectors like to investigate SMEs.
Paris, likes easy to understand projects (and some hard ones).
How the tax collectors "support businesses",
The tax gap is the difference between the tax that in theory should be collected by HMRC, a figure pulled out of the arse of some civil servant to prove that not everybody is paying their taxes and thereby justify their own existence and petty empires, and the amount that is actually collected.
ahhhh yes, how the tax collectors "support businesses", I got a letter from my local tax inspector some years ago telling me that they were going to visit me to see how they could help my business start up.
What followed was a 40 minute meeting, with a minor civil servant telling me what I couldn't claim for and I rapidly came to the conclusion that the only reason to have the meeting was so that the minor civil servant could claim mileage and some per diems.
“So” said the tax inspector at the end of the meeting “do you have any questions?”.
“Yes” I replied, “only one”.
“Why is it that if was an employee of a bank and had a preferential rate bank loan I have to pay 'benefit in kind' of the difference between the preferential rate and the commercial rate, do civil servants have to do the same with their pensions?”
The minor civil servant then terminated the meeting.
I had a full tax audit that year, but I also had a good accountant so the audit was a bit of a waste really.
if we employ 1000 tax inspectors chasing 100 companies each (2 days per company), that is 100k companies checked.
If each company owes and imediately pays a mythical £1,000 in tax, that is a maximum possible benefit of £100m.
However 1000 tax inspectors tackling carousel fraud, might make a dent in the £10Bn+ lost each to organised crime, terrorists funding schemes, etc.
This of course forgets the cost to the UK tax payer of all the revenue lost from 1000 man years of businesses not trading, therefore not making a profit, therefore not paying tax.
So trebles all round to the dumb ass minister/civil servant and his dinner party cronies who thought this a good idea after they had consumed several bottles of wine.
1000 tax inspectors @ £40k/year = £40million
Split into 10 man teams each with a team leader:
100 team leaders @ 55k/year = £5.5million
Total in wages = £45million.
Employers National Insurance (12%) = £5.5million
Benefits (pension, healthcare, bonuses etc) = £30k per person = £33.3m
Each tax Inspector spends 2 days off-site visiting with a company:
£40 food, £40 travel, £10 incidentals per day = £180 per company = £18m expenses.
Cost of office space for 10 man team + team leader £100k per annum = £10m.
Grand total: 45 + 5.5 + 33.3 +18 +10 = £111.8 million
Revenue collected: £100 million
Net Loss: £11,800,000
"Benefits (pension, healthcare, bonuses etc) = £30k per person = £33.3m
Each tax Inspector spends 2 days off-site visiting with a company:
£40 food, £40 travel, £10 incidentals per day = £180 per company = £18m expenses."
Pension yes, but bonuses?????? Or Healthcare????? You really have no idea what civil servants do or don't get - not only no bonuses or healthcare.
And £40 food and £10 "incidentals" a day? NO chance. IF they have to stay away from home then yes about £5 per night incidentals and a much smaller meal allowance than £40. I think they do get a meal allowance if they have to be away more than 12 hours too. But just working off-site doesn't give them anything above travel expenses.
Please guys don't assume that just because such things are the norm for private industry, government employees get them too - they don't even get free tea/coffee in the office!
I'll be ok, all my paperwork is stuffed into a big cardboard box at the bottom of the cupboard. If Mr Taxman comes around I can just tip it out for him. :)
Logic and the obvious flaw in this plan
If you are a crook and you intend to defraud the tax man, your records are going to be picture perfect....
BOTH OF THEM...
The one that you show the tax man, and the one you actually run your business on.
What wll happen is people that are good at their trade (i.e. a carpenter or plumber), but not good at book keeping, will get harressed, and the crooks will be given a nod and congratualated on how good their record keeping is.
"Good record-keeping helps businesses pay the right amount of tax at the right time, thereby potentially avoiding interest and penalties. Adequate records give businesses a clear idea of their trading position and profitability, allowing them to make business decisions and adjustments to ensure survival and success,"
No reasonable person could possibly argue with this, could they?!
My accountant/book keeper tells me what records I need to keep, if I didn't already know, to give me a clear idea of my position. I do not need a Civil Servant who has little idea (almost certainly) telling me, at my taxpaying expense, what I need to do to ensure survival and success. I don't like the idea of HMRC "Mission Creep".
If my records are such that they prevent a proper accounting for the taxes due then that is a different matter. This little adventure seems more like an effort to either kill small businesses on the edge (but employing people) or levy more 'penalties' or administrative fines.
Tax inspectors are, in my experience, good people but the leadership contains too many rapacious, ignorant, lazy, well connected thugs who dress and speak very well.
Is this 'Tax Gap' the same sort of thing as the income gap that RIAssA and their ilk claim to be losing due to piracy? Perhaps HMRC should be looking for people downloading income from bitTorrent?