Tax seen as major burden by self-employed

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The Cambridge Satchel Company’s founder Julie Deane has blasted tax as being one of the main burdens self-employed workers face.

Writing in ‘Self employment: an independent review’, a publication commissioned by the Prime Minister, Deane expressed her concerns around self-employed workers’ lack of basic taxation knowledge,

While researching the 41-page document Deane held detailed discussions with trade and professional organisations, and also used results from an online survey.

In the review, Deane slammed taxation as “an administrative burden, a barrier to growth, and an issue that could benefit from improved simplicity and better advice”, recommending that the government looks into this issue for the self-employed in more detail.  

To counteract this, Deane called for better education for young people as her leading recommendation. The respondents’ lack of knowledge regarding cashflow, bookkeeping, and in particular, taxation regularly surfaced as a concern. “These are skills that would benefit many adults regardless of their employment status and yet they are still lacking from our Curriculum,” said Deane.

The tax definition of whether someone is defined as self employed or employed also posed a problem for many of Deane’s survey respondents.

A section of the review was also dedicated to resources and support the self employed can use to alleviate their tax troubles – listing HMRC, ICAEW, Xero and webinars as common locations used. For self-employed workers starting out, accountants were also listed as a common avenue for financial advice, with HMRC included for tax advice. For those who felt they needed more information, bookkeeping and advice on tax matters were cited as the biggest challenge.

While tax knowledge was listed by many self-employed workers as a major problem, their struggle to maintain a work-life balance superseded their tax concerns as the number one issue faced.

Outside of taxation and education, Deane’s other recommendations included ensuring advice and support is easily accessible, self-employed maternity allowance is enhanced, shared work spaces are increased, and flexible solutions for financial issues such as mortgages, pensions and insurance are provided.

Responding to Deane’s review, David Cameron said: “We’re already helping with tax allowances, start-up support and with our ongoing commitment to cutting red tape, and given Julie Deane’s experience of starting her own successful business, she was the ideal person to shine more light on the needs of self-employed people.”

After graduating from Cambridge University, Deane worked as a chartered accountant. She struck business success in 2007 when she launched a range of leather satchels which subsequently featured in a Google Chrome commercial. She invested £600 of her own money into her business which she started from her kitchen table. The company now turns over £10m per year. 

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17th Feb 2016 14:41

Help is nigh Julie

HMRC are bringing out quarterly figures to ease the burden for the sme's. This will mark the start of the "digital" explosion which will see the UK tax system as the leaders. Mr. Gauke (reading from an autocue) says that by flicking an APP information will be downloaded to HMRC on a quarterly basis to enable the sme's to be spot on with their tax payments. PAYE for the self-employed. So Julie you have no need for concerns. PML.

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Do you really believe that?

johnjenkins wrote:

HMRC are bringing out quarterly figures to ease the burden for the sme's. 

 

I hope you don't really believe that. What it will really mean is that lots of SME's will end up paying their accountant 4 times a year instead of once, and the extra cost and extra admin this will cause will be the straw that breaks the camel's back and drive a lot of people out of business. It is a cynical way for governments to get tax payments earlier. 

Also  it will lead to far more pointless investigations by dumb HMRC officers who are utterly incapable of understanding that business profits can and do vary. 

I have zero faith in HMRC.

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17th Feb 2016 16:31

@AWEB Reader

You should look up what PML means it's a bit like LOL with umph.

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Apologies

johnjenkins wrote:

You should look up what PML means it's a bit like LOL with umph.

 

Sorry I missed that bit :)  

I'm getting old, the eyes are not what they used to be. Come to think of it nor are most of the other parts of the anatomy either :(

Whenever I see yet another HMRC "bright idea" I have a natural tendency to assume it's a stupid idea - and I can't remember the last time that assumption was wrong. 

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19th Feb 2016 12:33

HMRC Good Ideas

AWEB Reader wrote:

Whenever I see yet another HMRC "bright idea" I have a natural tendency to assume it's a stupid idea - and I can't remember the last time that assumption was wrong. 

That's a short memory ...

The last good idea was the Self Assessment phone line for agents.

They shot themselves in the foot there ... it's so good they haven't repeated it.

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17th Feb 2016 23:27

Red tape cuts?
Yes the burdens placed on businesses are so counter productive. Such a shame those bringing in these changes have no idea that they discourage growth, entrepreneurs, and increase the admin costs of businesses. They have a chance to stop the constant attacks on businesses and landlords. They choose to believe in themselves but ignore those on the ground with professional qualifications. We need New Conservatives. Let have some new blood who have ability to stop peddling nonsense and bring in changes that work positively.
Can anyone tell me where we find the calculations to support the numbers for the £400m saving to businessss as I cannot work it out. Maybe they mixed up the plus and minus signs and from where I sit its a big fat additional cost and burden to make tax returns quarterly and digital.

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19th Feb 2016 16:46

£400m savings! Wow

Hmm let us see.

£400m savings divided by the 4.6 million people working for themselves (according to the first article when I googled the question how many self employed people in UK) leaves £86.96 per business better off. What a great deal. How much extra work for that additional £1.67 per week.

Less tax on those supposed additional profits.

What a joke it all is. Except it seems they are serious.

 

 

 

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20th Feb 2016 12:52

£400m
They could not even substantiate this I doubt. Whatever they came up with we could rip it apart. What exactly would be saved? Are they working out the saving in biros, ink and paper? I expect they are. They have surely ignored the additional cost. As for saying there will be penalties 4 times a year now!!!
As for £6.5b lost to tax due to the current system. Let's see the explanation of that one too.
It will be harmful to the self-employed etc and is unnecessary.
But it is just another damaging move right now by this government. Not the only one that is ill thought out. Assuming there is any thinking going on at all.

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HMRC are from Mars, the rest of us from Venus

I attended HMRC's "Making Tax Digital Consultation Event on Simpler Payment" on Friday and it was clear that HMRC have absolutely no concept of how the real world works.

​For a start, they talked about their plans for quarterly submissions of data that that will replace the need for a tax return. Apparently, this will provide HMRC with as much information as they need to ensure that we pay the correct amount of tax, and this information will be provided from us to them (i.e. "returned"), but they were at pains to point out that this "isn't a tax return"! What kind of Orwellian double-speak is this?

The representatives from HMRC then told us that this would be "easier" (one of three meaningless E's that they got excited about) because HMRC could then tell the taxpayer their tax liability much earlier than at present. They seem to have forgotten that we have a self-assessment system, whereby the taxpayer tells HMRC their liability, not the other way around. I presume that they meant that, by being required to file more often, the taxpayer would be forced to calculate his tax liability earlier. Whilst this may be a laudable aim (akin to legislating that all citizens visit their GP four times a year, so as to spot health risks earlier), it does not make tax any easier. As accountants, we should perhaps rejoice at this proposal, as it will undoubtedly lead to more work for the profession, but HMRC seem to think that the taxpayer can do this him/herself and that this would not add any additional burden on the small business. Seriously?!! What does HMRC believe that the accountancy profession does for its clients?

They then moved onto the idea of advanced payments. Their thought apparently being that, by making people pay tax earlier (based, by the way, on interim estimates that may bear no relation whatsoever to the final tax liability, unless the business accrues profits evenly throughout the year), this would help them manage their cashflow and not burden them with a huge liability at the year-end. A business owner is free to estimate his tax liability at any time that he wishes and can put sufficient monies aside throughout the year to meet their final obligation. These 'set aside' funds can generate interest at the bank and are available to the business if it suddenly needs them for short-term working capital prior to the due date for payment. If, instead, they were paid (early) to HMRC, how easy would it be to get it back?

The final issue raised by HMRC was to ask whether we liked the idea of forcing accounting periods and VAT quarters to be coterminous. Again, it seems to have passed HMRC by that a business is free to choose any year-end and VAT stagger of its choosing. Why do they think that enforced behaviour is more helpful to a business than free choice?

There were in excess of twenty people in the room and the overwhelming consensus was that these ideas were unworkable and would impose an impossible burden on small businesses. The HMRC reps told us that they had heard pretty much the same viewpoint at every such session that they had held. It appears, however, that our views are of little interest as this appears to be going ahead, notwithstanding the general opposition.

I would just add that, in my opinion, the one good element of the Making Tax Digital process is the intention for a single dashboard, via which a taxpayer will be able to see and pay all of his taxes. So long as agents will be able to access all of the same data as the taxpayer, then I'd happily endorse that one initiative. However, I hear rumours that HMRC's back-end systems are unable to support this, as the part of the system that tracks agent details cannot be linked across multiple taxes.

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21st Feb 2016 20:30

Tinker Tinker Tinker Tinker

It seems that the 'own-job-preservers' at the higher end of HMRC are hell bent on devoting 99% of their time and HMRC resources on regulations for the already compliant, and ignoring the loss of revenues from undeclared income.

So, just off the top of my head, how difficult would it be to ask the self-employed to pay 4 times a year instead of twice?

Are software companies driving this behind the scenes?

And, if HMRC has ever decreasing numbers, why in the name of reason are they marginalizing agents?

 

 

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By Nemesis
21st Feb 2016 21:10

Marginalising Agents? That is a myth

HMRC has no intention of marginalising agents. But if tax administration is going to change, agents need to change with it. 

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22nd Feb 2016 08:31

Daft stuff is fine if they want to ignore perfectly sensible comments before they implement it.

From their own statistics a staggering 43% of SA returns were filed in January 2016.  The aim of this HMRC disclosure was to trumpet the efficiency of their database.  But BY DEFINITION these 43% of people will all struggle to file 4 times per year when they currently can't manage to do it until January.  So by the statistics HMRC themselves are spitting out this proposal will end in tears.  Their tears not ours.

It really makes you wonder if one part of HMRC is even capable of communicating with another:

HMRC Chump 1:  I've got a great idea, let's make folks file 4 times per year so we get the information sooner.

HMRC Chump 2: Well mate 43% of them can't file within 9 months as it is, and our database is creaking at the seams with the current volumes never mind 4 times the current data volumes.

Chump 1:  OK thanks for tipping me off.  Bloody daft idea, let's can it before we spend any money on it or publicising the idea as we'd only look like a bunch of tossers.

Chump 2:  Good call mate.

That is how the conversation should have gone, how hard can it be HMRC?

 

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By Nemesis
22nd Feb 2016 23:22

Really?

So you think it is ok to say - just put your paperwork in a shoe box and bring it to me at the end of the year, and i'll sort it out for you? No wonder so many small businesses get into debt, or are seduced into making figures up to avoid the consequences of not having kept on top of how their business was doing over the course of the year. That is institutionalised failure. We can do so much better than that if tax is integrated into the running of the business.

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23rd Feb 2016 09:46

Really?

All my clients are on regular software or my spreadsheets.

Like I said, it's not the already compliant that you need to worry about, as I infer that you know.

If HMRC want SA to be like PAYE, they should go the whole hog and make it monthly, because, to be fair, the time/resource spike with VAT can get a bit testing. But HMRC know that because they have done a full consultation.

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23rd Feb 2016 10:14

@Nemesis

That is part of our job as Accountants. If our clients had our knowledge then there would be no need for us, which I believe is on HMRC agenda. You're totally wrong in suggesting that tax should be integrated into the running of the business. That would take away the very foundation of running a business. It maybe ok for the big boys but it certainly isn't for the SME's. Most small businees will know how they are doing without the need for overload, purely for HMRC benefit. HMRC should keep their noses out of business because it hasn't got a clue how they run. That is indeed obvious with their lack of answers when it comes to "consultations". Just because it's high tech doesn't mean it's workable. There is more fraud now with high tech than there ever has been. What does that tell you?

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24th Feb 2016 09:49

The main thing here....

is to be clear on what these quarterly 'submissions' will look like in reality.  We are told that they are not returns or accounts, and that they will enable taxpayers to pay tax as they go. What the heck will they look like, and how 'raw' will the data be and in reality will they be put right in quarter four?  Will they be 'simple' cash accounts? If so, how will stock, debtors and capital allowances be dealt with?

I bet that there will be some great transitional rules!

So in a nutshell, taxpayers will get to pay the right amount of tax based on not preparing tax returns or accounts?

More details please, because this looks like one of those ideas that seemed great at 11.30pm in the pub, but reveals a major logic error the next morning!

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24th Feb 2016 10:13

@Vaughan

It doesn't really matter what format they may take it's unworkable. Let's just take one example. An Accountant has 200 subbies. They are expected to do quarterly Accounts (you have to do accounts (or income and expenditure account) to get the tax liability RIGHT) for all within 7 days. It's not workable it's impossible.

Do HMRC really think they can blind us with this Digital Taxation modernisation, read off an autocue nonsense? Clearly they do.

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24th Feb 2016 10:17

If the government are

hell bent on digital modernisation how come it still takes 3 days for a cheque to clear? etc. etc.

 

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24th Feb 2016 10:48

I'm with you on this John

But as you say HMRC seem to be pushing on regardless.  This has resulted in a "this won't work", "oh yes it will" pantomime style argument between the profession and HMRC.  What I want are further details to prove the " this won't work" argument. The current proposals are so vague it is hard to have a reasoned discussion.

HMRC seem to be saying that Mr Subbie can fulfil his quarterly filing requirements by pressing send in a phone app.  Cleary this is icloud cuckoo land!  And it's not just Mr Subbie, what about larger more complex businesses?

What I particularly hate is the view from HMRC that if you are against quarterly filing then you must also be anti digitalisation. This is where Nemesis' argument that 'if the tax administration is changing then agents must change with it' grates.  This is one of those argumentative 'truisms' that is inarguable but also irrelevant.  Our argument is that the tax administration shouldn't be changed to quarterly submissions.  Other areas of digitalisation are to be welcomed.  Tax 'dashboards' collating all of a taxpayer's needs - bring it on, if it works it will be brilliant, providing agents, HMRC and the taxpayer all see the same data!

To be honest, what scares me more is the HMRC official talking about 'grading/approving' agents, and firms 'adding value'.  Sounds like HMRC have been on a 2020 style course!

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24th Feb 2016 11:26

I'm all for

changing tax administration changing and Nemesis made the point that we have to change with it. So let's have a "consultation" on how that can be achieved. Let's have a "consultation" about how tax payments from a business can be more closely linked with real time. Everybody that has been to the current "consultations" have come away dumbfounded over HMRC lack of answers. Why? quite simply because HMRC have come up with something that cannot work and they know it. Well the people at the "consultations" know it.

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25th Feb 2016 08:18

We are European leaders in red tape!

Not sure which way to vote on the EU.  In the end I will probably grit my teeth and vote to stay along with the silent majority, as per Scottish independence.  One thing is for sure a reduction in red tape is not a reason to vote to leave:

1.  The UK tax code is the longest in the EU.  This is some feat when you consider that German laws have words like Rindfleischetikettierungsüberwachungsaufgabenübertragungsgesetz.

2. If I consider the main red tape items which have affected my client base in the past 6 years they are:

IR35  

anti-moneylaundering

income shifting

RTI

auto-enrolment

and the latest daft proposal for quarterly reporting

The common theme - none of this drivel came from Brussels, it was all thought up by the bunch of twits we voted for in this country.  (Leaving aside AML which was a worldwide thing after 9/11.)

So a vote to leave, whatever else it is, most certainly is not a vote for less daft red tape for small busineses.

 

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25th Feb 2016 09:25

@mr.mischief

Have a look at the other post about DC referendum to see what EU laws have made small business life a nightmare then re-post.

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