Small Businesses: Tax Reporting

Debate between Hannah Bardell and Rob Marris

Monday 25th January 2016 Westminster Hall

[Hannah Bardell (Livingston) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Hanson. I hope that hon. Members agree that we have seen a coming together across the political divides on a number of issues today. There are many shared views about the concerns that are out there.

I pay tribute to Paul Johnson, who created the petition, which, when I last looked before leaving the office today, had nearly 110,000 signatures. That is a sign of the strength of feeling to which hon. Members have referred. It is also important to pay tribute to the work of the Petitions Committee in ensuring that there are opportunities for the public to respond to and feed into Government policy. The hon. Member for Hertsmere (Oliver Dowden) mentioned the engagement on Twitter; the more we can open up our politics, the better.

It will not have escaped anyone’s notice that it is Burns night tonight and, for those hon. Members who did not know, Robert Burns worked in the Excise—

[Rob Marris]

He was a socialist.

[Hannah Bardell]

Yes. What we have heard today is a call for the Government to reflect on the plans and on the pace of development. I am able to find a Robert Burns quote for every situation, and he once said:

“Dare to be honest and fear no labour.”

I commend those comments to the Government.

The contributions to the debate, across all political parties, have been insightful and thought-provoking, but while the Scottish National party supports digital transformation and recognises that it is absolutely key in all aspects of our society, we believe that it must be done in parallel with a simplification of tax policy. We feel that the Government’s lack of consideration about how the changes will work in practice flies in the face of the commitments they have made to simplify tax for small businesses. I believe that the Chancellor said that his “dream” was

“that people might actually understand the tax laws which they were being asked to comply with.”

Some time ago, the Government also said:

“We need to reduce the complexities in our tax system and the coalition is committed to delivering that goal.”

I hope, and assume, that the Government are still committed to that goal, but I think we have heard from hon. Members across the House today that people are not convinced about that.

I highlight again that a key concern across rural parts of Scotland and, I am sure, the rest of the UK, is weak digital infrastructure and connectivity. We appreciate that there has been significant investment by the UK Government, and we commend them for that. In Scotland we have also made a significant investment—£115 million, to be spent in the next year—against a challenging financial backdrop. The overarching issue for us is that we want small and medium-sized businesses to thrive and develop in rural parts of Scotland, but connectivity and infrastructure are not developing apace with that potential and with the proposed changes. Along with people from across the political divides, I urge the Minister and the Government to include that issue in the consultation and map out the weak areas of connectivity.

My hon. Friend the Member for Ross, Skye and Lochaber (Ian Blackford), who is not here today, recently highlighted a grave concern in his constituency. Thousands of houses and premises there lost connectivity over Christmas, which affected their businesses. If that were to happen regularly, one can only imagine how the changes might affect people. To give an example, a good friend of mine owns a bed and breakfast in the port town and fishing village of Mallaig. For some time he had a satellite on the side of his house—I do not know whether he still does—which provided mobile coverage to Rum, which is one of the Small Isles. There happened to be a storm one winter, and the satellite was knocked off. The whole island lost connectivity for a number of weeks. That is a small but important example of how connectivity is delivered in some of the rural parts of our United Kingdom and across the isles.

Many businesses and groups have argued that the proposals for digital accounts and quarterly reporting will make the requirements on small businesses more complex. The Federation of Small Businesses has condemned the UK Government’s failure to publish initial options for the form that the quarterly return will take, which has not been defined. A number of Members have mentioned that. The FSB has said:

“As such, the announcement runs completely contrary to evidence-based policy making, which only serves to undermine businesses’ confidence that Government is determined to tackle the administrative burdens of small business.”

Additional research has shown that on average, businesses pay £3,600 a year to comply with tax arrangements. The additional burden could have a significant impact.

The FSB has provided us with comments that its members made between 15 and 17 December last year in response to the proposals. One said that instead of making the lives of small business owners as simple as possible,

“HMRC should be pursuing the large businesses that do so very well out of not paying the taxes they are due!”

That is particularly resonant given the urgent question earlier today. Another member said:

“This is my worst nightmare come true. I am going to be spending more time filling out tax returns than actually running the business. I fear it may be the straw that breaks the camel’s back.”

An accountant said:

“I totally disagree with your comment that ‘it’s good for accountants’. As a professional accountant nagging those late clients to bring in their records and other information to beat the January deadline, having to do this now 4 times a year would be our worst nightmare come true. It would be January four times a year with no doubt penalties and interest for those that are late in filing the quarterly returns.”

I hope the Minister will take those comments on board and think carefully about them.

Many bodies have echoed the concern about the additional workload that the new reporting requirements will place on businesses. Chris Jones, the president of the Chartered Institute of Taxation, said of the quarterly reporting requirement that he was

“struggling to reconcile this with the announcement by the Chancellor…that the annual cost to business of tax administration will be reduced by £400m”.

Similarly, Anthony Thomas, chairman of the Low Incomes Tax Reform Group, has said:

“We gave a cautious welcome to the new digital tax accounts on the basis they might simplify matters for some low income taxpayers, although we remained very concerned that a significant proportion of the population, often the most vulnerable, remain digitally excluded.”

That applies for a number of reasons. People on lower incomes who start businesses, particularly women, may well be excluded and unable to navigate the new system. A number of Members have referred to the roll-out and cost of training and development. I hope the Minister will refer to how that will be done and assessed, because that is important.

Business for Scotland surveyed 278 of its members, and 92% of them felt that the changes would cost them significantly more and said that they already had enough to deal with. The majority are concerned about increased stress and fear that accountancy fees will be increased and that they will be constantly preparing for the next tax return. I appreciate that some of those fears may be allayed, but there is an issue of public perception, as we have heard today. It is about how the Government communicate and consult with business, which is key.

The SNP has significant concerns about HMRC’s ability to implement the changes in light of budget cuts and the closure of HMRC offices. It is predicted that many small businesses will need to seek advice on how to meet the extra requirements of quarterly reporting. James Hoare of PricewaterhouseCoopers has said:

“Digitising the relationship between business and HMRC is desirable and inevitable, but the scope and timescale of the proposed changes raise important questions, such as whether training and support will be provided for those less familiar with digital reporting.”

HMRC has had its budget cut. Its departmental expenditure limit will fall from £3.8 billion in 2016-17 to £3.1 billion in 2019-20, which is a cut of more than £700 million across three financial years.

We are all aware of the proposed closures and the devastating impact that they will have, particularly in Scotland, where offices are going to be centralised to the central belt in Edinburgh and Glasgow. Much has been said about how that will be a positive move, and it has been said that minimal numbers of jobs will be lost, but that is not what we are hearing on the ground, where there is a real fear that we will lose much of the expertise of offices and their staff, and that there will be an inability to collect tax efficiently.

The centralisation of offices has led to other issues being raised, include travel, particularly in my constituency of Livingston. One of the offices there was purpose-built for HMRC. It is not old or dilapidated in any way, and the local workforce have impressed on me the number of areas of expertise that they feel will be lost, and the real-terms cut in salary that will result from increased travel costs. Livingston, as most Members will know, is placed right between Edinburgh and Glasgow, and connectivity is very good. I cannot imagine what things will be like for those who are considered to within one hour’s travel.

The key themes are public and business confidence, and the development of broadband infrastructure and connectivity at pace. The burden must not fall largely on small businesses, because, as a number of Members have said, entrepreneurship and the people’s desire to start their own business may be reduced if the administrative burden is put on them. As we have heard, HMRC is already struggling to answer calls and deal with the current workload, so we need to understand the effect of the various changes and cuts coming down the line. In some respects, it seems like a perfect storm of service closures, reduced budgets and a greater burden on the service.

I hope the Minister and the Government will think carefully about all the issues that have been raised, and that they will extend the time for consultation and roll-out, as Members from all parties have asked for. Otherwise, there is significant fear, not only in the House but in small businesses across the country, that the burden will be greater for small businesses and damage could be done to them.