With six out of ten companies failing within their first three years the onus is on the government and its agencies to encourage more businesses to start-up.
But yesterday experts told FreelanceUK that MPs were right to say on Friday that the taxman is not doing enough to help people turn their dreams into commercial reality.
They believe that rather than being able to do business, early stage entrepreneurs are tied up phoning different arms of Revenue & Customs to register for different taxes.
This means that even if a business owner needs to register for a number of different taxes at the same time, they must do so separately for each.
By not having a single point of contact to register for taxes so businesses can start trading quickly, the UK is flouting international best practice.
Edward Leigh, chairman of the Public Accounts Committee, said the frustration entrepreneurs feel stems from HMRC having a separate computer for each tax.
In the committee’s report, he hinted that the state’s telephone advice lines may actually hinder rather than help entrepreneurs because of their sheer number.
“Businesses have to contact different helplines for advice on different taxes,” the PAC said in its report, Helping business meet their tax obligations.
“The Department [HMRC] operates two helplines for the newly self employed, one for new employers and seven more covering different taxes”.
In the future, the department must push towards a system where a new business registers just once for all the taxes it must pay, the PAC said.
Richard Mannion, chairman of the small business sub-committee at the Chartered Institute of Taxation, endorsed the committee’s recommendations.
“The report identifies that the systems in place for new businesses to register with HMRC are somewhat archaic and consequently unhelpful to all concerned,” he told FreelanceUK yesterday.
Although the merger of Customs & Excise with the Inland Revenue has created a single tax authority, it is undermined as “new businesses still have to register separately for different taxes.”
He added: “The MPs recommended that the department should introduce a single entry point for registrations, preferably online. The report also identifies that the merged body still operates in internal silos which cannot communicate with each other”.
As a result, when business owners reach the right part of HMRC, they must give different reference numbers for each tax, such as VAT or PAYE, in every contact they make.
And although HMRC plans to introduce a “customer index” to link its data on taxpayers, this will not help businesses to simplify their tax affairs, the PAC said.
Instead, the committee wants HMRC to introduce a ‘unique identifier’ to make it easier for businesses to deal with the department – a recommendation backed by the CIOT.
With the ‘unique identifier’ the PAC believes there is scope to link the Revenue’s services and, in due course, wider ones offered by the government to each individual business.
Mr Mannion said: “The bottom line here is the constant need for HMRC to look at things from the perspective of the customer rather than what suits the department best.”
Apart from its network of helplines, the taxman also runs workshops and seminars to help new businesses understand and comply with their tax commitments.
Yet these appear ineffective too: just eight per cent of start-ups have attended such events, and cancellations are “high”, the committee’s report found.
The CIOT believes the MPs were right to suggest that take up of advice sessions might be better if they were held outside normal working hours or perhaps online.
“Probably the most important point made in the report is the need to educate new businesses as early as possible,” the institute said in a statement.
“At present there is a huge amount of information available to those who seek it out. The MPs suggested that HMRC makes a bigger effort to get in front of those taxpayers who most need the guidance, but who otherwise would not put themselves out to find it.”
Rather ominously the PAC pointed out that only about one half of small firms are aware of the different schemes on offer to simplify their tax requirements.
Evidencing the cost of ignorance, the PAC said that if all small businesses eligible took advantage of just two of the schemes, they would save at least £50million a year.
The MPs said: “The number of different schemes and how they can be used in combination makes it difficult for businesses to decide whether they are beneficial.
“To improve take up, the department [HMRC] should advertise more widely the financial benefits to businesses of using them.”
The Federation of Small Businesses explained small firms’ lack of awareness by saying that their members don’t have finance department to deal with tax rules, unlike organisations.
“The owner has to deal with registration for tax whilst also struggling to establish the business and find new customers,” the FSB said.
Bill Knox, its tax chairman, added: “This report rightly recommends that the tax authorities make it easier for new businesses to register for tax and provide advice to them on how to meet their obligations.
“This will enable more businesses to grow and prevent them from innocently falling foul of the authorities because of the complexities of the system.”
Oct 30, 2007
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