On Monday a debate was introduced in Westminster Hall after petition 115895, regarding tax reporting for small businesses and the self-employed reached 100,000 signatures.
David Morris MP’s spoke in the debate and the full text of his speech is below:
I am the Government’s self-employment ambassador and as such it is my task to engage with people in the self-employment sector to find out exactly what concerns them and exactly what they would like from the Government on all matters of self-employment.
I was a small businessman for the better part of 30 years before entering Parliament. I know that I do not look old enough but, believe you me, I spent every year building my business up, just as Peter Kyle outlined. It was a steep learning curve of trepidation and fear most of the time, but when one gets a hand on the roller coaster, one begins to make a success of it.
It has just been made clear that this is not going to be a new form of taxation every quarter, but the self-employed sector is frightened that it could become the new VAT. The sector could be given a bill over a period of, perhaps, 10 years from the date when the new policy comes in and becomes law, and HMRC could mutate that to become a collective every quarter. Rightly, the self-employment sector is very worried that that might happen with this policy. From my research and what I have just been given from the Treasury, I am sure that will not happen, and I am sure the Minister can assure me of that at the end of the debate.
The sector is concerned that the proposal could be a predictor of turnover. As I outlined, when I was self-employed, I worked year on year, until I started to be comfortable. Some years were good and some were extraordinarily bad. As the hon. Member for Hove eloquently said, this is not a matter of one size fits all. Self-employment differs across the sphere. Some business may be seasonal, a classic example being a man who grows Christmas trees. He should have a good December, but during the rest of the year he will have to have other self-employment.
We do not want online registration to become a yardstick with which to beat the self-employed. I know from my experience of being self-employed that turnover can fluctuate. We have just been through a deep depression and we have seen its effects on small businesses as well as large businesses. We do not want HMRC to start saying that business X did better in quarter one four years ago than it is doing now. Self-employment does not work that way. Businesses evolve and sometimes they become smaller and sometimes they enlarge. One size does not fit all.
Not all self-employed people are computer savvy. Some 20% are not online, especially in rural areas. That may include the farming community and its business models, up to 40% of whom are not computer literate and cannot get their heads around online formulations.
The hon. Member for Hove, who spoke eloquently and forcefully, said we do not want it to become more complicated for the self-employed to get in touch with HMRC to sort out their problems.
It is welcome that, to introduce the policy by 2020, a voluntary scheme will be looked at. That would be pivotal in the success of the policy. What should also be looked at is wider consultation across the whole self-employment sector. The Federation of Small Businesses should be consulted at length, as should British Chambers of Commerce, the Association of Independent Professionals and the Self-Employed and a whole host of other self-employment bodies with a firm stakehold in the self-employment sector and society.
Some business anomalies come and go and HMRC should recognise that and help. I referred to the chap who grows Christmas trees once a year. I was in the retail and service industry, which fluctuates between holiday periods and between periods when there is more spending on the high street and recessions. That should not be used as a sort of dashboard for small businesses in particular towns or regions or even across the country because they vary from someone running an IT business on the internet and selling small goods all the way to a big business on the verge of going multinational. Such businesses cannot be predicted.
HMRC has estimated
“that £6.5 billion in tax goes unpaid every year because of mistakes made when filing tax returns.”
We do not want that to become £12 billion, which may be a stretch of the imagination, but when any new system comes in, there are new challenges. We must make sure we get this right from the start. We do not want the self-employment sector to feel that Big Brother is on to them with a turnover predictor that becomes the new form of VAT. I do not think that will happen, but it must be said. Will the policy eventually lead to quarterly payments? From what I have seen from the Treasury, I do not think it will and I am sure the Minister will reassure us on that.
What must also be taken into account is that cash flow can be very unpredictable and many businesses are paid on a 90-day cycle, which is one quarter. That could skew and distort the figure that comes across a business’s dashboard with HMRC if it goes online.
To sum up, I hope this will not become the new VAT. I was a self-employed businessman for the better part of 30 years and I have seen all sorts of changes over that period from successive Governments of all political parties that had an effect on the way my business and others in my area ran. HMRC should set up special classes. The change should not be something that is just learned online. There should be a dedicated centre where self-employed people can be told what to do, so that they are not pressured into becoming semi-accountants, instead of earning money and being an entrepreneur and creative.
One part of the “Making tax digital” myth-buster that concerns me is where it says that people
“who genuinely can’t use digital tools…will be offered alternatives, like nominating someone else to update their information for them, or giving information by phone.”
In plain English, that reads to me like using an accountant. That should be taken into due consideration with these classes to ensure that people do not spend more and more of their time and money on employing more accountants to deal with quarterly returns.
It must also be asked what the penalties are if a quarterly return is not filed on time. Again, that concerns the self-employed sector. Those people want to know what the new system will look like, what it will involve and how, in reality, it will affect their business. We must get this right. We cannot let the estimated £6.5 billion of losses get any larger. It is good that the Government are grasping this nettle. It is a fact, whether we like it or not—everyone in this Chamber knows—that this kind of taxation filing will be done online eventually, because that is the way things are going. It is inevitable; that is the way of life. We all, from whichever side of the political divide, accept that. However, we must ensure that we do not place extra burdens on businesses and that they remain productive and creative, as we have one of the largest sectors for self-employment not in Europe, but in the world.
For the full debate please follow this link: http://www.theyworkforyou.com/whall/?id=2016-01-25a.1.0#g1.1