New Tax-Grab Powers for HMRC and Possible Effect On Small Businesses
Business recovery specialists across the country are raising concerns over the new powers that will enable HMRC to dip a hand into business bank accounts to retrieve any tax that is owed. The intention of these powers is to better enable HMRC to tackle tax evasion and tax avoidance schemes, which result in a cost to the tune of billions of pounds of taxpayers’ money.
These new powers would also be applicable to individuals who personally owe arrears of over £1,000. Concerns from accountants, insolvency and turnaround practitioners, come from fears that these new powers, which are set to be in place by the beginning of 2015, could have a potentially detrimental effect on small businesses.
Although these new powers would only be used in the event that a company had had ample warning from numerous reminders; and would also be sure to leave the company account with a minimum balance of at least £5000 remaining after any seizures; there are still worries that many companies will not survive what would potentially be a dramatic loss of cash-flow. It can be seen as being especially unfavourable for small to medium sized businesses – as any cash held is often working capital, needed for business essentials such as staff wages.
We have long argued from the announcement in the budget that there will be a detrimental impact on many, already struggling small and medium sized businesses. Any problems with cash flow which have resulted in an inability to pay tax arrears can in many cases be eventually alleviated given time. Those businesses that are on the verge of insolvency and in need of financial help and support are going to be caught out with any unexpected withdrawal of cash and could make any chance of business recovery impossible
Despite having an immediate loss of cash flow, once any owed tax payments are withdrawn by HMRC, the company would under the new laws, have up to 14 days to organise a settlement plan to repay the money owed over a more favourable period of time. If a repayment plan is successfully agreed then part or even all of the money initially accrued will be repaid to the company, so that tax payments can be made at a more gradual rate.
George Osborne believes that this new legislation will have the effect of driving tax avoidance rings underground or even out of the country; as the power to decisively seize cash which is owed in tax payments would stifle attempts at making block transfers between individual companies within these tax avoidance groups.
If tax avoidance rings are the real target then why are the amounts allowed to be seized so low at £1,000? This paltry amount of money is not going to affect a major tax avoidance scheme in any way.
Andrew Hubbard from Baker Tilly has brought up ethical concerns of HMRC being able to raid the accounts of “potential tax avoiders”, both individuals and businesses, and the invasion of privacy this may pose. As there will be a limit on the number formal procedures in place before grabbing cash from the accounts in question, there is fear that a grab and ask questions later attitude may develop, and mistakes may be made.
With the new powers appearing to be set in place to become active in the not too distant future, however, only time will tell whether the effect of HMRC’s new powers on small businesses will be more positive than negative.