Small Businesses: Tax Reporting

Oliver Dowden Excerpts

Monday 25th January 2016 Westminster Hall

[Oliver Dowden (Hertsmere) (Con)]

I beg to move,

That this House has considered e-petition 115895 relating to tax reporting for small businesses and the self-employed.

Members may be aware that it was announced less than two hours ago that, sadly, my predecessor but one as the Member for Hertsmere, Lord Parkinson—Cecil Parkinson—has died aged 84 after a long battle with cancer. He was a towering figure nationally, playing a central role in the great reforming Thatcher Governments of the 1980s, but he was also a brilliant local MP. He served Hertsmere from the constituency’s creation until 1992. Time and again, local residents would recall him with tremendous warmth and fondness—something I experienced myself after I was selected as the candidate in 2014. My thoughts and prayers are with his wife, Ann, and the rest of their family. [Hon. Members: “Hear, hear.]

I thank you, Mr Davies, for chairing the debate, which I am introducing on behalf of the Petitions Committee, of which I am a member. I declare that I am an adviser to IPSE, the Association of Independent Professionals and the Self-Employed—details are in the Register of Members’ Financial Interests.

The petition calls on the Government to

“Scrap plans forcing self employed & small business to do 4 tax returns yearly”.

As of this morning, it had attracted 110,000 signatures.

As we all know from our constituencies, small businesses are the backbone of our local economies, employing thousands of people and generating wealth and prosperity for our communities. That was demonstrated to me last week when I had the pleasure of speaking to more than 50 small businessmen and women in Borehamwood. Their businesses ranged from financial services, through recruitment and solicitors, to digital markets. They were hard-working people from Bushey, Radlett and Potters Bar—I am sure Members have similar places in their constituency—and they all demonstrate tremendous energy and creativity. They are willing to put their careers and income on the line to build thriving businesses, and the national statistics bear that out.

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.

The wording of the petition and related press coverage reflect the worry that measures outlined in last year’s autumn statement might require small businesses to complete four tax returns annually. Understandably, given the time, effort and almost inevitable cost of employing an accountant to do the job, that is a cause for great concern.

I note from the Government’s response to the petition that they propose quarterly updates rather than full returns. Will the Minister, when he responds to the debate, expand on that point and put on the record unambiguously that the Government’s proposals do not amount to quarterly tax returns?

[Mrs Maria Miller (Basingstoke) (Con)]

I welcome the debate and the Minister’s commitment to modernising the tax system—that is important to my constituents. Does my hon. Friend agree that the Government could get rid of some of the concerns being expressed by our constituents were they to make the guiding principle of any change in the reporting of tax that it should reduce administration and red tape for business?

[Oliver Dowden]

I completely agree with the sentiments expressed by my right hon. Friend. I will come on to that point shortly—

[Caroline Lucas (Brighton, Pavilion) (Green)]

Will the hon. Gentleman give way?

[Oliver Dowden]

If the hon. Lady will give me one moment, I will finish answering the previous intervention.

When we seek to change the taxation of small businesses, it is vital that we should do so in a way that reduces the net impact on business.

[Caroline Lucas]

I thank the hon. Gentleman for giving way and I congratulate him on securing the debate. On the burden on small businesses, does he agree that 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.

[Oliver Dowden]

I will come on to such points, but full consultation on any measures is important to inform exactly the situation faced by small businesses. The Chair of the Treasury Committee, my right hon. Friend the Member for Chichester (Mr Tyrie), has pointed out the specific problem of those without access to computers and IT altogether.

[Sammy Wilson (East Antrim) (DUP)]

Is the hon. Gentleman concerned about that point? 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.

[Oliver Dowden]

There is an issue, but the Government have said in their response to the petition that they will consider it. I hope for clarification on the question of the speed of broadband connection—businesses in my and many other constituencies rely on fast broadband, so for it not to be in place makes things difficult—and on the broader point about ensuring that small businesspeople who fill out tax returns have sufficient skills to do so. I also hope for reassurance from the Minister about a training programme and other online resources to enable small businesses to have those skills.

Despite what the Government have said in their response to the petition, the proposals announced in the autumn statement raise a number of issues, some of which have already been mentioned in the debate. I, too, will address such matters before other Members have the opportunity to examine them in more detail.

The Petitions Committee recently undertook a public consultation via Twitter, and I thank the Clerks for their hard work, which made it possible. Unbelievably, in 24 hours we received 1,285 tweets from 565 contributors, all of which can be seen by searching #HOCpetitions. The responses reflect concerns also expressed to me by the Federation of Small Businesses. I will briefly address some of those concerns.

The proposed measures, as I understand the situation, form part of the Government’s “Making tax digital” proposals, which most people agree is the right direction of travel. An end to bureaucratic form filling and associated unnecessary complications, and full access to digital accounts, all of which are promised in “Making tax digital”, would certainly be welcome. I commend the Government for their commitment to that agenda.

As we all know, however, the path to new Government initiatives, in particular those involving new IT, rarely runs smoothly, and we only have to think back to the introduction of tax credits or to the Rural Payments Agency under the previous Government for the evidence. I therefore urge the Minister to proceed with caution.

I note from the Government response to the petition that there will be consultation throughout 2016 and voluntary introduction before full phasing in by 2020. Many people are concerned that users should be fully consulted and systems properly tested before full roll-out. Furthermore, the system should be properly secure.

[Mr Alan Mak (Havant) (Con)]

I thank my hon. Friend for securing the debate. I draw the House’s attention to my entry in the Register of Members’ Financial Interests: I am the founder of two small businesses. He rightly said that the Government should ensure positive digital competency in respect of businesses being asked to participate in the scheme, but is he also aware that more than 99% of VAT returns are filed online? A high percentage of HMRC documents are already filed online, which should give the Government great confidence when they roll out the reforms.

[Oliver Dowden]

That is an important point. While there are questions to raise, it is important not to get carried away. The overall direction of Government travel is towards having a digital system for tax returns, and I hope that Members agree that that is the right thing to do. The questions are about the speed and pace of roll-out and appropriate consultation.

The difference between VAT and what is contemplated here is that VAT returns have a threshold, so the very smallest businesses do not fill them out, but they will do so in this case. That is an argument for caution. Another concern raised by petitioners is the nature and financial cost of digital reporting. It would therefore be helpful if the Government gave greater clarity on the scale, cost and nature of the information to be provided. 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. Surely, that is the measure of any successful tax reform. It is therefore vital that the net effect of the measure is to reduce, not add to, that regulatory burden.

[Rachael Maskell (York Central) (Lab/Co-op)]

Is it not right that, before the Government proceed any further with their proposals, they make a full analysis of not only the financial cost and burden they will put on small businesses, but the cost in time and infrastructure?

[Oliver Dowden]

I hope that all that will be considered in the consultation that the Government have committed to undertake.

[James Cleverly (Braintree) (Con)]

Much of the correspondence I have received on this from small businesses and those who write about small business is based on what seems to be a misunderstanding, but concern may go a long way to either hampering or aiding implementation. Do not the Government need to give almost as much thought to the communication about implementation as to the implementation itself to give small businesses confidence that they have thought through the regulatory burden that this requirement might be perceived to bring?

[Oliver Dowden]

My hon. Friend makes an important point. As I alluded to earlier, a lot of press coverage has suggested that this requirement amounts to quarterly tax returns. Whatever reservations we may have, it is pretty clear that it does not amount to that. I would welcome the Minister’s explicit assurance about that.

Another concern raised by petitioners was that they would not have the software or skills to produce the required information. I would welcome a commitment to proper availability of information, software and, where necessary, training for small businesses. We all know the difficulties of getting in contact with HMRC by telephone, so I ask the Government to look at ways to ensure that such information is readily and easily available.

[Fiona Mactaggart (Slough) (Lab)]

I am struck that among those who are self-employed, the greatest growth has been in the over-50s. About a year ago, Saga produced a report that said that they were something like 25% of the growth, but it did not point out that those people are overwhelmingly women who have built a microbusiness and many of them do not have the skills to follow up on such requirements. Indeed, earlier this morning, I was talking to a self-employed woman—a physical trainer—in her 30s who said, “What? Do we have to do this every time? I can’t possibly afford an accountant. My business isn’t big enough to do that.” Many women do not have the skills needed to do that effectively, so will the hon. Gentleman press the Minister to ensure that they get the training that they need?

--- Later in debate ---

[Oliver Dowden]

The right hon. Lady makes an important point about the contribution of women to the economy. One of the Government’s great success stories is the rise in female labour participation. Many of those women are involved in small businesses or are self-employed. I hope that the consultation considers all those points carefully and looks at the impact on women who seek to enter the labour market through that route as well as those who have been in the labour market for a long time. As I said, I do not disagree with the direction of the Government’s reforms, but it is important that the consultation addresses those matters properly.

The Treasury Committee raised specific issues about how businesses that do not use computers will be able to adapt. It would be good to have more detail on that.

In conclusion, it is welcome that the Government are committed to digitising our tax service, as that should reduce costs and administrative burdens for business, but I look forward to the debate providing an opportunity to address and allay concerns that, in the process of introducing a digital tax system, the Government do not add to the burdens on business. As I said at the beginning of my remarks, small businesses are the lifeblood of our national economy, and I hope that these measures will aid the circulation of that blood rather than clog arteries.

--- Later in debate ---

[Oliver Dowden]

Thank you for your chairmanship, Mr Hanson. I will wind up very briefly indeed. I was reminded by Scottish Members that it is Burns night, so I shall not detain people for much longer at all.

I thank all hon. Members for their contributions. We have particularly benefited from the experience of those who are involved in small business, including my hon. Friends the Members for South Ribble (Seema Kennedy), for Morecambe and Lunesdale (David Morris) and for High Peak (Andrew Bingham). I was particularly struck by what was said by the hon. Member for Hove (Peter Kyle), who gave such a passionate defence of entrepreneurship. I think he managed to convince the hon. Member for Nottingham East (Chris Leslie), but I wish him good luck with the wider leadership of the Labour party; we will see how he gets on with that. I also thank the hon. Member for East Antrim (Sammy Wilson) for his very passionate speech.

Finally, I thank the Minister for his response. I had the pleasure of hearing him speak in the House this afternoon about Google’s tax affairs. He rushed straight to this debate and has distinguished himself in both. I am grateful to him for his explicit reassurance that the plans do not amount to quarterly tax returns, for his commitment to further consultation and for the fact that the Government are listening. Certainly, from my perspective, I will scrutinise the plans carefully as they continue to be rolled out, and I am sure that all Members will do so. We agree with the overall direction, but we are very keen to make sure that this is implemented properly.

Question put and agreed to.

Resolved,

That this House has considered e-petition 115895 relating to tax reporting for small businesses and the self-employed.