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HMRC's plans for a quicker and simpler tax system for small businesses. By Nichola Ross Martin

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30th Nov 2006
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In the run up to the 2006 pre-budget report, HM Revenue & Customs (HMRC) has published fuller details of its on-going plans to help small businesses settle and deal with their tax affairs more quickly and simply. It also give us an indication of some of the administration changes that we might find mooted in the next couple of Finance Bills.

In its latest publication, 'Delivering a new relationship with business', HMRC details its highly ambitious package of reforms together with a timetable which is designed to “transform” its relationship with business. HMRC is aiming by 2010-11 to have implemented a delivery plan that takes in along the way, the suggestions of the Better Regulation Task Force and Hampton reports in reducing administrative burdens and creating effective administration and enforcement, Lord Carter’s recommendations in relation to on-line services, whilst also attempting to transform its relationship with small business and its advisors. Not too much on the agenda then!

Over the next four years, HMRC will be working towards delivery of its long-term vision that business will:
• provide information only once (as HMRC will have a single customer record)
• spend less time dealing with inspections,
• benefit from a range of flexible payment options;
• enjoy a single point of contact with HMRC; and
• benefit from clear and targeted support, education and guidance at the time they need it most.

Filing dates and late filing penalties
Most advisors and their clients will favour HMRC’s intention to align the enquiry window with the submission of the tax return. We assume that Mr Brown will mention this in his PBR. This not only enables businesses to settle their tax affairs sooner, but will bring forward finality of self-assessment. It may well prompt some taxpayers to settle their affairs earlier in the year.

On that note, it seems that HMRC are all set to increase SA late filing penalties to £250 per return (something else for the PBR?). It seems a drastic measure at first glance as it is unlikely to change the habits of the “hardcore late filers”, but it will do wonders for Mr Brown’s takings.

HMRC is keen for all businesses to file on-line in the future and so if you are not IT literate now you should be thinking about it. There again, if you are not IT literate you are unlikely to be reading this or HMRC;s website either.

Tax enquiries
HMRC say that they are keen to develop a fresh approach to audits and inspections, so that it is less burdensome for compliant businesses. They are now reviewing the results of their ”lighter touch" intervention pilots that took place earlier this year. They plan to start a consultation process in 2007/08 to develop a broader range of interventions that better match resource to risk. They note that they intend to work more collaboratively with business and agents to identify how risks can be reduced through pre-return assurance, the sharing of some risk assessments and how to make post-return work more effective and efficient.

In this area, HMRC plan to reduce the burden on compliant businesses of dealing with HMRC's audits and inspections by 10 per cent over three years and by a further fifteen percent over fifteen years.

Agent relationships
Realistically, there are unlikely to be any key developments in this delicate area for several years. There is no “D” for “Delivered” in HMRC’s “Agents – working in partnership” planner, which appears at the end of the publication referred above. They are keen to set up and deliver a database which brings together all the information HMRC holds about agents, including their client lists by 2009/10 though.

An Agent and Adviser Steering Group is being set up to develop “a shared vision of how working together will deliver real benefits for both agents and their customers.” The key elements are:
• trust, professionalism and integrity;
• openness and transparency; and
• significantly improved services.

It is hoped that this new steering group will consult widely with accountants at “grass roots level”, this is a good opportunity to build bridges.

New forms
We have just seen the introduction of the redesigned VAT registration form which is effective from December 2006. This is planned to make registration easier. A new self-assessment return is planned in April 2008, this cannot be too radical as the publication of the Mirrlees Review 'Reforming the tax system for the 21st century' is not expected until spring 2008.

Tax simplification
Chance would be a fine thing! Changing the course of a supertanker is a very slow process and HMRC has its work cut out trying to deliver all that is promised on time. The new report also conincides with HMRC’s consultation exercises in creating the new management act that will hopefully modernise and simplify the legislative framework for the administration of taxes. As simplification is necessary to reduce administrative burden, it should not stop at just the way that the system itself is administered. Yes, this needs to be simple, but on the other hand the underlying legislation poses far the greatest problems.

From HMRC’s perspective, the move to complicate stems from a need to reduce perceived avoidance. It seems that it is practically very hard to achieve the right balance. Any change has to come from the top of HMRC, and whilst we have such provocative cases such as Jones v Garnett (settlement provisions) and Robert Gaines-Cooper (residence/domicile) running through the courts one might understand why it is in HMRC’s interest to leave the confusing rules and their own often inaccurate guidance in place.

Achievements to-date
Upping the tone, HMRC say that they have already managed to successfully implement a range of initiatives over the past 18 months to help small businesses, these include:
- the four-page tax return for the smallest businesses.
- removing from 300,000 employers the responsibility for paying tax credits to their employees;
- reducing the number of forms to fill in, they highlight the withdrawal of Form 42 alone as saving employers £200 a time.
- better tax code information ensuring that a million more employees a registered under the correct tax code from the outset.

These are all highly commendable

Paul Gray, acting Chairman of HMRC, says that he recognises that “we still have a lot to do to deliver the sort of step-change in customer experience that businesses are looking for.” In his 2006 Budget the Chancellor announced stretching targets to reduce administrative burdens to be delivered by 2010–11. Given the changes that HMRC are planning are so huge, it may be case of stretching the changes over more than just the next four years.

The document 'Delivering a new relationship with business' is available on HMRC's website:

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Replies (9)

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By stephenkendrew
30th Nov 2006 17:32

Achievements to date???
Isn't it refreshing to see that HMRC consider they have "managed to successfully implement a range of initiatives over the past 18 months to help small businesses."

Four-page tax return:-
I don’t particularly find the 4-page return any easier or more difficult to do than the 10+ pages of the full return. If anything it gives me more problems. For example, it’s harder to get supplementary pages for; it may have been suitable last year for some clients but not this year so we have to do the full return in any case; I’ve submitted 5 short returns that showed a small trading loss and requested this be set against other income - HMRC failed to do this in every case.

Responsibility for paying tax credits:-
Employers only had to do this since April 2000. All they’ve really achieved is putting employers in the same position as they were 6 years ago.

Form 42:-
As above but 2 years ago!

Better tax code information:-
So a million employees had wrong tax codes!? Surely they didn’t all work for small businesses. In any case, I can’t quite see how this would “help small businesses”.

"Stretching the changes over more than just the next four years":-
I guess if this is what they've achieved in the last 18 months, we aren't going to see much in 4 years. In fact, I'm not hopeful of seeing too many changes in the 20 years or so before I retire!!


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By AnonymousUser
30th Nov 2006 19:35

Claptrap
Does anyone still believe the claptrap Mr. Brown and cronies keep coming up with. Do they think we are that gullible.
So for simpler tax system read more squeezing of small business until there is nothing left.
Beware the ides of march Mr Brown!!!!!!!!!!!!!

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By michaelblake
05th Dec 2006 09:41

Is the link correct?
The klink to the report took me to the following page!

Sorry but the page you are trying to reach cannot be found.
This has possibly been caused by a number of pages being deleted or moved as part of the migration to the new HM Revenue & Customs website or the page address has been typed incorrectly.

Our search facility above is available to find the information you are looking for or return to our home page and use the navigation links from there.

If you have linked to this page from another piece of content within our site please forward the details using our feedback form.

Please accept our apologies for any inconvenience.

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Kate Phelon
By Kate Phelon
05th Dec 2006 09:51

Broken link
Dear Michael

There was a problem with the code for this link which has now been fixed.

I apologise for any inconvenience this may have caused.

Kind Regards

Kate Phelon
Content Manager

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By AnonymousUser
04th Dec 2006 15:15

Consultation

I have not heard of a single small practitoner being consulted by HMRC about the problems of small business.

We are the only ones who understand the situation (because we are small businesses who help other small businesses) but we are not being consulted.

Instead they consulted KPMG who are a fine organisation but about as relevant to finding a solution as are my grandmother's petunias.

The lunatics are in charge of the asylum.

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By User deleted
04th Dec 2006 15:51

WOT?
I will believe it when I see it in writing and set in stone. At the moment there is so much hype about this that HMRC will do this and will do that to help the small business. To date HMRC has absoutely nothing to small business. It fact hindered instead of helping growth in the SME with more and more red tapes and threats of investigations etc... Perhaps should start looking somwhere nearer to their doors that others for deceit and underdeclaration.

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By Arm266
04th Dec 2006 21:05

Electronic Submission ???
If HMRC are so keen to make returns easier, the simpliest of all actions would be to allow late returns to be done online, instead of having to be sent to clients to post by Royal Mail !!

In my line of business, I often have people who see my adverts and realise that they should have been doing a return for the last few years. It becomes far more laborious when the Royal Mail get involved.

Like most of your readers, I like to maximise my online working and HMRC do appear to work quicker where online submission is involved.

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By redsq01
04th Dec 2006 22:34

What % of GDP
I believe that public sector spending percentage of GDP has risen to an egregious number under Beetlebrow of Bulgaria but what's the % of private sector GDP spent dealing with this sort of rubbish ?

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Stephen Quay
By squay
05th Dec 2006 00:41

Short Return - No Thanks
The short return cannot be filed online by agents using third party software. As far as I know it can't be filed online at all. It has to be handwritten and scanned by HMRC using special OCR software. If I get one of these I bin it and submit a full SA return online for my clients just like HMRC want me to.

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