Small Businesses: Tax Reporting

Debate between Seema Kennedy and Rob Marris

Monday 25th January 2016 Westminster Hall

[Seema Kennedy]

I understand the point that the hon. Gentleman is making, but although there might be an error in the input of records, surely if everything is done electronically, there will be fewer calculation errors at least, or so one would hope.

[Rob Marris]

I agree with the hon. Lady that that is the theory, but the fact is that input errors are likely to increase in number if more information is being inputted—not necessarily, but likely. She is absolutely right that that is the point at which errors, if there are any, will creep in—garbage in, garbage out, as the saying goes.

Another practicality mentioned today relates to remote areas. I hope that the Minister will say something about that, because I have seen some suggestion that things could be done on a smartphone. I am no techie, but the only ways in which I can see that being possible are on a phablet with a screen of about 7 inches in size, and there are not many of those around, or by people using their smartphone as a modem and submitting information over the mobile telephone network, rather than broadband cables. However, many remote areas do not have 4G, so in theory someone could be dumping the information through the smartphone, which is being used as a tether modem, although that seems unlikely because the speed will not be that great, so there is a problem.

Nevertheless, I support the general idea of getting stuff online to achieve greater efficiencies. We have to be careful about those who are unable to cope with the online stuff, for reasons of disability and so on, but contrary to what some Members have been saying, the Government—whether now, or in four years’ time when we in the Labour party are in government—must be careful about going along with everyone who will not engage online. Some people will not engage online even when they can, although it would be more efficient for them to do so and it is more expensive for the rest of us that they do not.

The way business is going—not every business, but an awful lot of them—if a small business does not engage online, the likelihood of it being successful decreases year by year, because of the digitalisation of the world. If an HMRC initiative encourages some small businesses to have more digitalisation than they would have done had the system not come in, that could be a good thing not only for them and how they run their businesses, but for how they interact with HMRC.

The hon. Member for South Ribble (Seema Kennedy) mentioned a hairdresser. A peripatetic hairdresser, for example, with his or her own car does not necessarily have to be online to run a successful hairdressing business. The way the world is going, however, that lack of a digital presence is likely to tell us against the hairdresser. Some hairdressers will now have an automated system to send a text message to tell the client, “Don’t forget, I’m coming round to give you a wash and shampoo tomorrow afternoon at 2.30.” That is fairly basic stuff, but it is using the digital to enhance business with fewer missed appointments and so on. That is how the world is going, so a nudge—to use one of the Government’s favourite words—from HMRC is not at all a bad thing, although we have to be sensitive about those who are unable to get online, for whatever reason, whether in terms of disability or their geographic presence, such as in a remote area.

We have all had our sob stories about running a small business. Years ago, I helped to run a small family business with a few employees, and later I worked for a large and successful firm with 1,000 employees. Before I first came to this place, I spent most of my working life in the private sector. The nudge then was to get computerised. In 1995, although I am not a techie, I was the first partner in my law firm to have a computer on my desk, because I kept saying, “The world’s getting more and more digital.” Now, 20 years later, except perhaps for reasons of disability, no lawyer in the land can be found without a computer on their desk. Any lawyer who did not have one 10 years ago probably went bust, because otherwise the job could not be done. Sometimes, we have to nudge things, and I nudged my partners on that.

Nevertheless, I suggest to the Government that any such nudge must be accompanied by simplification, as most recently referred to by the hon. Member for Livingston (Hannah Bardell). The Federation of Small Businesses states that, while it is “fully supportive” of HMRC’s “digital transformation”, it believes that that should be made “in parallel” with the simplification of tax policy. That is very important.

The Government, in their formal response to the petition, stated:

“Many taxpayers have told HMRC that they want more certainty over their tax bill”.

I can see that, although I am not sure that quarterly reporting will do it, because what bedevils business, small businesses in particular, is the complexity of the tax system.

The Minister and I have been talking about this on and off for about 10 years, so I appreciate that simplification is the holy grail. When the Chancellor was a shadow Treasury Minister, he used to bemoan the fact that under a Labour Government “Tolley’s Tax Guide” had gone up to 1,000 pages—but it is now in round terms 1,500 pages. As I have said before, however, I do not blame the Government or their predecessor coalition Government for that. Tax affairs are complex, because we have a lot of smart people in this country, who are innovative in financial services, and they find loopholes. Then the Government have to write a whole bunch of legislation to plug those loopholes, but that only keeps putting sticking plaster on sticking plaster.

For all the commendable efforts of John Whiting and the Office of Tax Simplification, the Government—true under Labour as well—have not engaged fully in tax simplification; it would be rough and ready and there would be less discretion and more apparent injustices, but there would be much more certainty, which the Government recognise all taxpayers, particularly small businesses, want.

The hon. Member for East Antrim referred to problems with computerisation. They are legion and there have been problems with the ancient online self-service system. Something that happened under the previous Labour Government and, incredibly, was made worse by the coalition Government was the single farm payment scheme for farmers. It was a disgrace under a Labour Government and that disgrace got worse under the coalition Government. Farmers were supposed to file their claims online for the single farm payment—its name has changed now, which is what all Governments do when they get into difficulties—in a so-called simplified system. What happened? The system collapsed for those who could not get into it. Farmers, because of the nature of their business—I think the hon. Member for High Peak (Andrew Bingham) referred to this—often live in remote places. They, too, might not even be able to use a phone as a tether modem because they do not have 4G.

The Opposition’s plea to the Minister is not to put the cart before the horse. The Government should get the system up and running before they start cutting back on the available assistance. I am not going into all the problems at HMRC, but they are legion, known about and much discussed. The Government are taking them on board and there has been a little improvement in recent months. That is long overdue, but it is good. The Minister should keep it up.

It is no secret that there are big problems in HMRC and the Government accept that, which is why HMRC is moving 3,000 more people to answer telephones and so on, but if the new system is not to involve quarterly tax returns—the Minister was commendably clear about that ex post facto, after hares started running and people started getting worried—there is a twofold problem. First—this was referred to by my hon. Friend the Member for Nottingham East—will quarterly updates be a precursor to quarterly tax returns and a kind of PAYE for the self-employed and small businesses? Secondly, will there be short-termism, which affects very large companies now and bedevils British manufacturing? Footsie companies have to make quarterly reports and so on to the stock exchange, but if this system comes in, it has the potential to drive SMEs towards short-termism, and generally there has been cross-party consensus that that has not been good for our economy. It might have been good for a few arbitrageurs and people like that, but it is not good overall.

To finish, I ask the Minister where he thinks we are going beyond quarterly updates, if at all. What the Government said in their response to the petition was either contradictory or a harbinger of where they want to take this:

“At the March 2015 Budget the government committed to transform the tax system by introducing simple, secure and personalised digital tax accounts, removing the need for annual tax returns.”

So that we are all clear, I will repeat that last bit again:

“removing the need for annual tax returns.”

If that is what the Government are talking about in secure and personalised digital tax accounts, is that what they have in mind for businesses—to remove the need for annual tax returns? That may be a coherent policy, but I am not aware that they have announced it and it would be the kind of very big change to which my hon. Friend the Member for Nottingham East referred. Will the Minister therefore say a little more about where he thinks the Government are, or are not, going with digitalisation?