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LITRG warns that compelling small businesses to submit information digitally will result in previously compliant individuals who find themselves unable to satisfy their new obligations becoming involuntarily non-compliant.

Introduction

A Parliamentary petition calling on the Government to scrap plans to make small businesses and self-employed individuals report their tax data quarterly through their digital tax accounts has gathered more than 106,000 signatures in its first three weeks.

LITRG supports the ambition but not the proposed method to achieve it

LITRG fully supports Government in its ambition to exploit digital technology to assist tax collection and compliance. The way to go about it is to develop software that is so much more convenient and easier to operate than any alternative that people will naturally choose to use it. The online self-assessment tax return is a clear example of what can be achieved with good software, efficiently supported. It is not compulsory to file tax returns on line, but a significant majority of SA filers now do so voluntarily. It is surely right that people should have the choice; forcing people to do what they cannot do will only create hard cases, and hard cases make bad law.

The petition

The petition calls on the Government to “scrap plans forcing the self-employed and small businesses to do four tax returns yearly”. It was begun by the owner of a small business, Paul Johnson, in response to the Chancellor’s announcement in the Autumn Statement that most self-employed people would in time be required to update their tax information at least quarterly using their digital tax account.

The signatories to the petition express concern that “each self-employed individual and small business will have the added burden of additional red tape, accountancy fees and potential for fines”, and a higher likelihood of errors.

When a petition has attracted over 10,000 signatures, the Government responds to it and once there are more than 100,000 signatures, it is considered for a Parliamentary debate.

The Government’s response shows an ignorance of how most businesses operate

In its response to the petition the Government says that small businesses will not be required to provide the equivalent of four tax returns a year. “Quarterly updates will largely be a matter of checking data generated from record-keeping software or apps and clicking ‘send’.”

This may be true for businesses that are already keeping records using software or apps that will be easily compatible with their digital tax account. But how many small businesses do that? If Government are of the view that all businesses, or even the majority, already keep sophisticated digital records, their approach is simplistic and betrays an ignorance of how most businesses actually operate. Very many of the smallest enterprises have no need of computer or internet technology, but now may be forced to invest in such equipment and training for the sole purpose of reporting to HMRC. Businesses which do not already use record-keeping software, or are using software that will be incompatible with HMRC’s digital accounts, will have to spend a great deal of time transposing their business records on to new systems to satisfy HMRC – time spent in an activity of little or no value to them or their customers.

The Government has also said that the measures will not apply to individuals in employment or pensioners unless they have at least £10,000 a year in secondary incomes from self-employment or property. In addition, support will be available for people to get online if they need it, and those who genuinely cannot do so will be able to use alternatives.

Existing protection in law against digital compulsion for some

LITRG has already drawn attention to the Government’s legal obligations in relation to those whose human rights would be infringed by being obliged to go online to report to HMRC. It is already established law that such protection may be enjoyed by those who are digitally excluded through age, disability or by living in a remote area without adequate connections. It might also apply to the smallest businesses with the lowest profit margins if they were required to undertake significant investment and training in computer technology simply in order to comply with HMRC’s reporting requirements, and for no other purpose.

LITRG appeals for the Government to consider the smallest enterprises

Alternative channels of reporting must be realistic given the circumstances and capability of the taxpayer. For example, requiring a pensioner business owner to use a smartphone if they cannot use a computer would not be a sensible alternative.

It seems that what is likely to follow compulsory quarterly reporting will be compulsory quarterly tax payments, and this will doubtless cause yet more problems for the smallest businesses.

LITRG awaits further details when the Government issues its promised consultation. It is essential that the circumstances and capability of the smallest enterprises are taken into account when devising the new policy, and that nobody is forced to do something they cannot.

Useful links

The petition
LITRG urges HMRC to respect the rights of the digitally excluded