Government comes clean on VAT, IR35

Delays to registering for VAT with HM Revenue & Customs are “unacceptable” – the government has admitted for the first time.

John Healey, the former Treasury minister, made the admission to a Commons debate on the backlog of VAT requests, which covers both online and offline submissions.

The delays to processing VAT requests, caused in part by extra fraud checks, were now causing problems for legitimate businesses, Mr Healey said.

Shadow economic secretary David Gauke said he hoped the government would take steps to “rectify the situation.”

Last week the government admitted that the enforcement of the Intermediaries Legislation (IR35) – dubbed ‘the freelancer’s tax’ – had been “patchy.”

Like the hike to the small companies’ tax rate, Dave Hartnett of HMRC heard that IR35 was seen by advisors as a legal “sticking plaster” to paper over the cracks in the tax system.

The Select Committee on Economic Affairs said there can be “no satisfactory long-term resolution” of the issues raised by personal service companies without tackling the system’s underlying structural issues.

It endorsed the verdict of the Institute of Chartered Accountants of England & Wales, which said IR35, and the hike to the SCR, was effectively 'sticking plaster' legislation

These measures and others, the ICAEW said, “may be papering over obvious cracks but does little to address the underlying structural difficulties in the UK tax system that give rise to the problem."

The “underlying issue” was identified as the different levies HMRC applies to national insurance and income tax.

Commenting on the three per cent tax increase on small companies, Chas Roy-Chowdhury, head of tax for the Association of Chartered Certified Accountants, said: “There seems to be little acknowledgement about the long-term planning requirements of businesses.

“To fundamentally change the regime without any consultation, without taking account of what the business has already done, is not in the least business-friendly or the right approach.”


4th July 2007

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