Is the HMRC damaging small businesses?

In a recent article we made the comment that “SMEs and entrepreneurs were handed some reason for cheer in the Chancellor’s Autumn statement, with the announcement of access to cut-price bank loans.

Of course, we did add that “given these companies are the ‘engine of the economy’, more thought needs to go into these”.

No argument (or humour) there.  But is “thought” enough?

I’m not a fan of Dragon’s Den (apart from anything else, dragons have lairs, not dens – and I feel the BBC ought to avoid the impression that they are using English as a foreign language).  But I completely agree with ”dragon” Julie Meyer that, “The government needs to focus on doing less and getting out of the business of running things. Politics cannot keep up with economic forces.”

I mentioned before that HMRC with its apparent incompetence and inability to obey laws on data security was not exactly helping to encourage the small business sector.

So making the effort to align HMRC with the “help” for SMEs would seem appropriate.

But what happens?

The “pilot” scheme to examine SME records is expanding.  That will have the effect of increasing the burden on SMEs, forcing them to spend more money, and particularly time, on record keeping.

Exactly the opposite of what Julie Meyer and I (from our very different perspectives) would suggest was wise.

Of course HMRC promised a “light touch” on defaults of this kind – which prompted the comment from the ACCA that,

“If businesses do not yet understand where HMRC want them to be, the stick is the wrong tool to get them there. Use of the carrot to encourage the desired behaviours would give business a clear steer as to where they need to go. Simply telling them they haven’t got it right yet is not on its own enough. Chasing defaulters with a big stick will probably move them from where they are, but not necessarily in the right direction. Giving them an incentive to move to the right place would not only present a more constructive image to small business, but would more importantly ensure that those businesses who are motivated to change do so in the desired way.”

So an entrepreneur, an official accounting body and somebody who deals with people’s behaviour at work, all think they’ve got it wrong.

Julie Meyer also said,

By enabling people and businesses to keep more of their own money by small business tax holidays and lower income tax, business owners and citizens would build and spend. When they do, they create growth.”

It looks as if the Government don’t actually want to create growth, since they are pursuing policies that everybody else seems to think will hamper it.

But it appears that Government believes that allowing SMEs “cheap” borrowing will solve the problems, as the SMEs can borrow to pay for their extra administration costs, the bureaucratic charges, the extra HMRC workers, and to pay the extra tax that will be required to pay for it all.

Of course, it was in part cheap borrowing that got the country into the mess in the first place and successive Government’s insistence on continuing to try to borrow their way out of trouble that turned a drama into a crisis.

I very rarely agree with Gordon Brown (except in sharing a deep distrust of Tony Blair) but one comment of his that was, in my view, correct is that people forget that when you borrow money you have to pay it back.

I don’t care how “cheap” the loans to SMEs are, they still have to be paid back.

So SMEs can borrow money for increased accountancy and legal support to fight HMRC to get back HMRC’s mistakes and over charging.

And when they sue HMRC and the Parliamentary Ombudsman and the ICO find HMRC at fault and fine them or make them pay compensation (assuming that the SME still exists to be paid compensation after having been penalised, overcharged and had to pay money not legally due to HMRC, but never receiving refunds HMRC should have paid) where does that money come from?

It comes out of the tax that they’ve taken from the SMEs!

This doesn’t affect anybody at HMRC, they get the same pay and benefits (including public sector pension) whether they do their job properly or not.

Meanwhile, the SMEs have to pay interest on the money they borrow to pay the extra tax that they have to pay for the HMRC ever swelling bureaucracy and then have to pay to borrow more to pay extra tax to pay the fines that HMRC pay for making all the bureaucratic mistakes!

If HMRC was headed by David Brent or Mr. Bean it would be funny.

But I’m not sure that anybody is laughing, except for the senior staff at HMRC, who must regard the world as the ultimate Whitehall farce – all it lacks is Brian Rix losing his trousers.

Wouldn’t it be easier, quicker and cheaper to make HMRCs leadership accountable – in the same way as the banks should be – and pay (or fine) them personally based on performance standards, rather than penalising SMEs, then making them pay to borrow money so that HMRC can continue to be profligate with our money?

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  • Drf

    Clearly HMRC do everything which they can to thwart small businesses.  Your idea of enforced accountability is a good one, but unless it were on the basis of fines levied on the individual employees of HMRC making the errors it could not work.