MPs debated the online petition "Scrap plans forcing self employed & small business to do 4 tax returns yearly" earlier this week and the Financial Secretary to the Treasury, David Gauke provided more detail of the government's plans for digital reporting.
The online petition had attracted some 110,000 signatures. Prior to the debate, the House of Common's Petitions Committee undertook a public consultation via Twitter, and in 24 hours received 1,285 tweets from 565 contributors (all of which can be seen by searching #HOCpetitions).
During the debate MPs from across the political spectrum agreed that the governments' proposal to force the self employed and property landlords to quarterly digital reporting should not increase in administrative burden or costs. Several MPs were able to talk with some authority on the difficulties of self employment, and Peter Kyle (Hove) (Lab) contribution on the difficulties of self employment was especially potent (it is reproduced at the end).
Key points made by MPs
- It is unclear how there will be any administration saving by submitting three more returns to HMRC per year.
- What are the updates for, if they are not returns? It seems that penalties will apply for late submission and there will be sanctions for incorrect reporting. Digital updates will need to be checked prior to reporting, in other words the updates will be returns and will increase administration costs.
- How will HMRC check the returns? There may be four interventions in a year.
- What account will be taken of capital allowances and other adjusting items?
- If tax is to be paid as a result of quarterly reporting what will happen to those whose business is seasonal? Will they overpay tax and then obtain a mid-year repayment?
- There is a lack of reliable broadband infrastructure throughout the UK.
- There will be requirement to purchase new hardware and software for people who do not use this technology.
Extracts from MP's speeches
Oliver Dowden (Hertsmere) (Con) introducing the debate: "...According to the latest figures from the Federation of Small Businesses, small business accounts for 99% of all private sector business, with total employment of more than 15 million—more than 60% of all private sector employment in the UK—and turnover of almost £2 trillion. There is therefore understandable concern about any measures the Government might introduce that could distract small businesspeople from their already extremely demanding day-to-day work with additional new regulations or costs...Understandably, given the time, effort and almost inevitable cost of employing an accountant to do the job, that is a cause for great concern...Estimates suggest that businesses already pay on average £3,600 a year to ensure that they are compliant with their tax and regulatory obligations and we, as a Government, must take away from that, not add to it.
Caroline Lucas (Brighton, Pavilion) (Green): "...On the burden on small businesses...there appears to be no evidence that all small businesses or self-employed people already keep track of their affairs digitally? Will the Minister tell us what his evidence base is for asserting that any change to the requirements will not be cumbersome for them? The assumption is that they are already keeping track of things digitally, but many constituents tell me that they are not. Therefore, the change will be a burden."
Sammy Wilson (East Antrim) (DUP): "...In parts of my constituency especially, many small businesses do not have access to the internet at all, because the speeds are so low. To expect those businesses to exchange all that data with Her Majesty’s Revenue and Customs quarterly is unrealistic.
George Kerevan (East Lothian) (SNP): "...The Government need to slow down and consult more. The Minister has to stop putting in place arbitrary timetables for when the consultation will work itself out. In particular, he has to stop telling us that he can implement the system in 2020 and impose quarterly returns, which is the thing that is worrying small businesses. Instead, he should concentrate on bringing the consultation to a point where everyone is on board, and then the system will come into play."
Dr Rupa Huq (Ealing Central and Acton) (Lab): "Reminds me of a comment made by Richard Morse, the FSB’s representative in my area, who said that HMRC did not seem to realise that a lot of businesses in my constituency were sole traders and that the person doing the accounts—there is no separate accounts department—was also generating the business and doing the work. He fears that the proposed system will eat into profits and lead to less taxable income, and I hope the consultation can address his fears."
The Financial Secretary to the Treasury (Mr David Gauke): "... this transformation does not—I repeat “not”—mean four tax returns a year, but, by 2020, most businesses will be keeping track of their tax affairs digitally, updating HMRC at least quarterly via their digital tax account...Quarterly updates will not involve the complexity of a full tax return, where the business, or its agent, has to gather together and manually input data on to an electronic or paper form and then perform various calculations. Instead, updates will be generated from digital records and, in most cases, little or no further entry of information will be needed. It will be much quicker, easier and far less burdensome than the current process. The agony of the annual tax return will be a thing of the past...We will consult on the sanctions that will be appropriate in a digital environment. Penalties and other sanctions will not be the same as those that apply now to end-of-year returns
Peter Kyle (Hove) (Lab) on the self employed:
"May I thank the hon. Member for Hertsmere (Oliver Dowden) for securing the debate?..
I am the Member of Parliament for Hove, in the city of Brighton and Hove, which is one of the most entrepreneurial cities in the whole country. It also has one of the highest rates of self-employment in the country. The self-employment rate for 16 to 64-year-olds in work is 13.5%, against a national average of 10%, with 55% of those people working in construction and 36% in professional, scientific or technical trades. That shows the nature of self-employment in the south, and self-employment is often a gateway to entrepreneurialism. Many of those self-employed people will go on to set up limited companies and become creators of wealth and employment, which drives the economy in Brighton and Hove.
Statistics, however, do not cover the nature and challenges of making the move to self-employment or setting up a microbusiness. I became self-employed early in my career and then moved on to set up a limited company and a microbusiness. I co-founded a local business, which, looking back, was the most educative experience of my life. We learn a huge amount when we decide to jump in with both feet and set up a business, as an enormous breadth of understanding and skills goes into setting up an enterprise and becoming an entrepreneur.
One key thing I learned from that experience was the nature of the risk involved in becoming self-employed or running a microbusiness. When we talk about people who are self-employed or run small businesses—sometimes as their friends, but particularly as policy makers—there is often an assumption that growth is linear, and that money increases and risk diminishes each year, as they get used to growing business and to the sector they are involved in.
My experience was very different. Growth came on the back of extreme risk and extreme vulnerability, followed by a period of comfort. I then had to make a decision: should I stay in my comfort zone or take the decision to move out of it, back into extreme risk and vulnerability? The business jumped into periods of growth, with each jump and each improvement in annual figures coming on the back of a period of risk. As the business employed more people and its growth increased, the risk did not diminish; it got greater and greater, because more depended on the business’s success. I have a huge appreciation for entrepreneurs who are growing businesses, because there is no inevitability about the success of any business. It comes only on the back of extreme hard work and the ability to take risk on behalf of a business and the people who depend on it.
Few people enter self-employment or set up small businesses with all the skills they need to do so. They sometimes lack skills in sales, admin, accounting, marketing, social media and product development. No one inherently possesses all those skills—particularly accounting—when they go into business or become self-employed. It is very unlikely that all of the 55% of self-employed people in the city I live in who work in construction have all the administrative and accounting skills they need. Talk of changes to accounting and reporting can therefore be extremely intimidating to them.
Gaps in people’s skills can be not just intimidating but terrifying. While people are learning skills, or worrying about lacking them, they are not doing. They are not out there selling, building the relationships that every business and self-employed person needs or winning new business. We must be mindful of that when we heap new regulation, and changes in accounting and reporting, on people who are self-employed or run small businesses. Talk of regulatory change can be intensely worrying for those who lack accounting skills. People who are worried become risk-averse and do not have the boldness of character we need in our entrepreneurs, particularly in the small business sector.
The self-employed have a lot to worry about. One third of them will earn less than the minimum wage for two or three periods in a year. They have no statutory holiday, and the working time directive does not cover their work. All of us will have heard stories from knocking on doors and talking to constituents at community events or reading their correspondence. I was struck by one particular story when I was campaigning during the general election. I knocked on the door of a tradesman who was self-employed and always worrying about the next contract. He told me, as he held his young baby in his arms, that he had never once been on a full week’s holiday with his wife and children. Instead, his wife takes the children away for a week once a year and he goes to meet them for the weekend, because he cannot take the risk of not completing a contract. That type of experience is repeated throughout the self-employed sector and the microbusiness sector. People in those sectors make a lot of personal sacrifices in order to drive the economy, particularly in the south of England."