Sensible enough but…..

From April, HM Revenue & Customs (HMRC) will be able to demand a security from companies when the taxman considers there is a \”serious risk\” that the business will try to dodge PAYE or National Insurance Contributions (NICs).

As they say:

Tax officials added that the \”amount of tax at risk, the employer\’s previous behaviour and other risks\” will be used to determine the size of the security, but it will typically be either four or six months\’ worth of income tax and NICs.

About 400 companies are expected to have to provide a security in the next financial year, HMRC said.

As a way of dealing with serial offenders, can\’t see anything wrong with it. However, such schemes do have a habit of expanding. And if it did expand it wouldn\’t be a good idea.

For one of the major sources of working capital for young and small companies is indeed that float that you can dig out of delaying payments to the taxman. Perhaps you shouldn\’t do it, perhaps it\’s even naughty, but it is still true that it\’s a major source of working capital.

Asking for a bond of course doubles that hit on working capital. Instead of being able to slide a payment that might be due in three months time out to 6 months time, you\’ve got to come up with the 6 month payment right now. Even that it\’s a bond, not an actual payment, doesn\’t change much as it\’s still a hit to your credit rating or how much you can borrow elsewhere.

I remember being absolutely astonished in California. Having set up and started a business we were then told by the sales tax people (so equivalent of the Vatman, not PAYE but still similar) that we had to put up a bond for the amount of sales tax we expected to collect in the next three months.

Yes, of course, legally it\’s the State\’s money, we\’re just collecting it on their behalf. Yes, absolutely, they have a right to it. But what does it do for business formation when you deliberately increase the amount of capital a start up must have by pre-charging the taxes that might be due three or four months down the road?

There\’s entirely another way of looking at this. Being a bit lax on credit ratings and payment terms for taxes on small and new companies is an explicit subsidy to their working capital. And we do all agree that getting capital into small and new companies is something this country isn\’t all that good at, do we? And that possibly there\’s even an argument that government might have a role to play here?

Even if we don\’t all agree with that description, we do all agree that many people say that is a problem, yes? In fact, there are many people who say that Government should be even more explicit in such subsidies: by, for example, making grants and low interest loans to such small and start up companies.

And here we have just such a scheme, even though it operates rather under the radar. The problem is, of course, those who take serial advantage of this laxness which provides the subsidy.

Perfectly happy with the idea that the serial offenders get it: not all that over joyed about the idea that it might be gradually extended until the subsidy vanishes and we start demanding that all start ups require even more capital than they do at present.

7 comments on “Sensible enough but…..

  1. It is interesting that many claim that UK business is hampered by too much regulation and a tax regime that is anti-entrepreneur unlike America. When America evidently isn’t the nirvana many claim. Or rather it still manages to be very entrepreneurial despite California wanting its VAT in advance.

  2. Perfectly happy with the idea that the serial offenders get it: not all that over joyed about the idea that it might be gradually extended until the subsidy vanishes and we start demanding that all start ups require even more capital than they do at present.

    Except, correct me if I am wrong, but isn’t it likely that the serial offenders are people who start up several companies in a row? You start up a new company, you import a lot of stuff, you sell it, you keep the VAT and declare bankruptcy. The next year you do it all again.

    Companies that have been around for 100 years are, I suspect, slightly less likely to do this.

    So the whole idea is a bad one because it will inevitably target start ups.

  3. We could make the subsidy more explicit, by allowing business losses to be set off against PAYE.

    That way if the business genuinely flopped, there wouldn’t be any PAYE due anyway (which would decrease write-offs, and so ought to make Murphy happier).

  4. “About 400 companies are expected to have to provide a security in the next financial year, HMRC said.”

    So a gnat’s piss in a ocean then. So it is really worth it to do this, with all it’s associated costs in checking that companies will need to pay up front or not, chasing them up for their payment, etc.

    Ooooooh, I just worked it out. It’s to keep tax men in a job when all around everyone is losing theirs. Blatent job creation scheme then.

  5. It’s the state’s money and they have a perfect right to it?

    What, even if they’re asking for it in advance based on their guess (‘cos they won’t accept your guess, will they?) of what you might possibly owe them in a few months’ time?

    Please tell me this was sarcasm that I failed to spot.

  6. On the one hand one wouldn’t want to exacerbate the cashflow problems of small businesses. On the other, I see no reason why general taxation should be that bit higher so as to support failing companies for a few more months. Portsmouth Football Club comes to mind as an example. 400 companies is not many, so it does appear that HMRC intends to choose its targets wisely.

Leave a Reply

Name and email are required. Your email address will not be published.