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SME tax: Why is a ‘simple, efficient and effective tax system’ not a priority?

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

SME tax: Why is a ‘simple, efficient and effective tax system’ not a priority?

As we strive for self-development, it’s good to set objectives.

Ambitions help focus the mind on what we want to achieve, at home or in our careers.

In recent years, a growing number of individuals have set their sights on becoming entrepreneurs but, as statistics published recently by the Office of Tax Simplification (OTS) indicate, merely being their own boss seems to be enough of a goal.

By way of illustration, the OTS has reported that almost half of all small businesses trading in the UK at the beginning of last year didn’t employ anyone other than their owners.

Of course, the country’s SMEs are not the only ones with targets to reach.

Take HMRC, for example.

As it launched its ‘Making Tax Digital’ initiative, it declared the intention to be “one of the most digitally advanced tax administrations in the world”

I wonder whether a key part in the strategy determined by the Revenue’s CEO, Sir Jon Thompson, was a subtle tweak of the key ingredient identified by entertainer Roy Castle for those wanting to feature in his successful TV show exploring the world’s ‘Record Breakers’.

Instead of dedication being what HMRC needed, perhaps Sir Jon saw a shortcut to success in delegation, passing the responsibility of administering as much of the tax system as possible to others – most notably to small businesses – with penalties to encourage compliance.

After all, at the same time as the Revenue was promoting ‘Making Tax Digital’ as “more effective, more efficient [and] easier for taxpayers”, it was trying to reconcile the twin prospects of fewer resources and more work.

Sir Jon’s predecessor, Dame Lin Homer, had to oversee successive cuts in her budget and, four months after being named as HMRC’s top official, he was also forced to confront the administrative consequences of the referendum vote to leave the European Union.

As the House of Commons’ Public Accounts Committee chair, Meg Hillier MP, noted in January last year, it meant that “what was already a precarious high-wire act is now being battered by the winds of Brexit, with potentially catastrophic consequences”.

Last November, she worried further that “in some areas the cracks are showing”. Even allowing for the challenge of Brexit, Ms Hillier added, “the authority must not lose sight of its wider responsibilities to UK taxpayers”.

A new OTS study suggests that among the taxpayers not necessarily being helped by the Revenue are those in the SME community.

The OTS report, in fact, describes a dysfunctional and cumbersome tax structure, one unable to meet the needs of small businesses.

It is, as a result, “unsurprising that administrative work on dealing with tax can loom disproportionately large in the context of the daily pressure of running the business”.

Faced with such a scenario, it is perhaps equally unsurprising that the UK has slipped down the World Bank’s rankings of various countries according to the ‘Ease of Doing Business’.

The common thread running through ia series of 28 recommendations issued by the OTS is a demand for HMRC to do more (offer more guidance, do more research, hire more relevant senior staff).

I don’t think that Bill Dodwell, the OTS’ Tax Director, is necessarily holding his breath, though, and expecting HMRC to comply in the same rapid manner that it expects from SMEs.

An OTS review of the UK SME tax system, published in December 2014, may have been warmly welcomed but, as Mr Dodwell now admits, some of its “key recommendations remain outstanding”.

The thing is that Mr Dodwell and colleagues recognise how a simple, efficient and effective tax system offers “benefits and cost savings both for the business and HMRC”.

That may well be true but with a tax code which now exceeds 17,000 pages in length and Sir Jon Thompson acutely aware both of the workload involved in addressing Brexit and the savaging likely from his parliamentary paymasters should he fail to close the gap between expected and actual receipts, I wonder whether he views grumbles among small firms as simply not enough of a priority.

If you have any queries on this article on SME tax, or have any queries on SME tax in general, then please get in touch.

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