NAO Calls For More Tax Help For UK Start-Ups

by Robert Lee, Tax-News.com, London

07 December 2006

The UK's public spending watchdog, the National Audit Office, has urged HM Revenue and Customs to put in place new systems to help newly-registered businesses comply with their tax obligations.

A new report from the NAO has put forward a series of recommendations to encourage improved compliance by new businesses, including making registration easier, coordinating the help available through different organisations, and in the longer term, moving towards a unique identifier for each business.

The NAO says that newly registered businesses are more likely than established businesses to get their tax affairs wrong, but if they are helped to get it right first time they are likely to continue to comply in the future.

The proportion of new businesses filing their tax returns on time is lower than for the business population as a whole, according to the NAO. However, it says that improving the filing performance of new businesses to the level of the general business population would lead to an additional 119,000 returns submitted on time, reduce the penalties paid by these businesses and reduce the costs of pursuing outstanding returns. There are also opportunities to improve the proportion of businesses paying the correct amount of tax, the report states.

In the short-term, the NAO proposes that HM Revenue and Customs should target its help at those businesses most likely to benefit from it, such as those entirely new to business, and encourage businesses to use the email tax alert system at businesslink.gov.uk. It could also work more closely with other organisations, such as tax agents and financial institutions, to coordinate the help available to new businesses and to increase awareness of the various tax simplification schemes.

In the longer term, the report argues that there would be benefits for both HMRC and businesses in introducing a single online tax registration for businesses and a unique identifier for each business, which are used in other countries such as Canada and Australia. A unique identifier would link data on individual businesses across the different tax computer systems and help to give a clearer view of an individual business’ entire tax affairs. However the NAO cautions that this would take some time to introduce, and involve significant costs.

Commenting on the release of yesterday's report, Sir John Bourn, head of the NAO, observed that: "Newly registered businesses are a diverse group, ranging from those setting up in business for the first time to those with previous business experience, so increasing tax compliance among this group requires a flexible approach which targets the differing needs of businesses. Pursuing the recommendations highlighted in this study will help HM Revenue and Customs in further improving the ability of new businesses to deal with their tax affairs."

"Introducing a unique tax identifier would require substantial resources but could also result in substantial benefits, enabling HMRC to view the entire tax affairs of individual businesses and achieve a better understanding of the needs of different groups of taxpayers."

HMRC has said that it is already taking steps to simplify the tax compliance burden for small business. Last month it launched a new publication 'Delivering a new relationship with business', which details a package of reforms designed to transform its relationship with business, including measures to allow businesses to settle their tax affairs sooner, to reduce the burden of forms and inspections and to develop a single customer record.

HMRC said that it will have implemented a clear delivery plan by 2010/11.

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