I wrote about Arctic Systems and the economics of small business tax yesterday.
The Professional Contractor's Group who represent the UK's contracting community, who are big users of small limited companies, has argued back after Arctic Systems. They undertaken a survey which is also reported here. It shows:
- 43% say biggest concern is complexity of the tax law
- 41% say HMRC assessed their liability incorrectly
- 42.3% say HMRC approaches you as 'guilty until proven innocent'
- 33.5% say they experienced vexatious behaviour from inspectors
These stats are telling in themselves. For example, 41% might say HMRC calculate their tax liability incorrectly but since the contractor has the responsibility under self assessment to do this that's unlikely to be true.
And it's actually true that 100% of HMRC approaches are on the basis of 'guilty until proven innocent'. That is where the onus of proof lies in tax.
Regrettably though there is evidence to support their last claim, and that's not to HMRC's credit.
But neither is calling for solutions that are unworkable of any benefit to the PCG. They have said:
Freelancers and other small businesses have very little trust in HMRC so it's high time that HMRC was put under a legal obligation not to harm peoples' commercial interests. [M]any PCG members have had costly and distressing experiences of dealing with HMRC - even when they did not owe any tax - and insisted that it is "quite wrong that HMRC can just walk away.
There's currently no mechanism for compensation for the stress and loss of earnings that a lengthy Revenue investigation can bring. PCG believes that must change.
That is unworkable. The right to investigate is essential to ensuring the right tax is paid in the UK. Like it or not, people do evade tax in this country. Contractors will be amongst those doing so. It is not possible to always identify accurately in advance who is and is not telling the truth. This takes time to establish. HMRC must have the right to establish that, and most tax payers could considerably help themselves in my experience as an accountant who has worked on many tax investigations if they were willing to give full disclosure and straight answers from the outset on accounts that were honestly prepared to HMRC. When that is done I have dealt with investigations from open to close in very short periods of time indeed.
So this cuts two ways. The taxpayer who is open, transparent, honest, keeps good records and deals with enquiries promptly should get exceptionally good treatment. And there should be processes to decide to close these case quickly. I agree with that. But expect the rest to have a rough time then. Because that is the corollary.
HMRC are going for a risk based approach for large business. This is what it would mean for small business. Will the PCG say yes?
And in the meantime, will the support wholesale change in the system of tax of small businesses?