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  3. PKF Condemns HMRC's 'Petty' Attack On UK Small Business

PKF Condemns HMRC's 'Petty' Attack On UK Small Business

by Robert Lee,, London

06 February 2007

HM Revenue and Customs (HMRC) may claw back GBP500 from thousands of small companies that have filed their PAYE returns online, accounting and business advisory firm, PKF has warned.

In a move that PKF argues is a further blow to the relationship between the Treasury and small business, HMRC has announced that, on "legal advice", it has re-interpreted the anti-avoidance provisions on cash incentives given to employers that file their PAYE returns online.

According to PKF, the wording of the HMRC notice suggests that small businesses that have filed online in good faith stand to lose up to GBP500 for returns they have already submitted, and a further GBP325 for filing their PAYE returns online up to 2010.

Under the PAYE online filing incentive scheme, intended for employers with less than 50 employees, companies filing online for the 2004/5 and 2005/6 tax years receive GBP250. This drops to GBP150 for 2006/7, to GBP100 in 2007/8 and GBP75 in 2008/9.

PKF said the change could hit thousands of small companies that have struggled with HMRC's online return systems believing that the incentive payments would offset some of their administration costs.

The anti-avoidance rules were introduced in March 2005 to prevent businesses from splitting up into a number of small employers in order to make multiple claims for the GBP250 incentive payments. In its original guidance on the rules, HMRC stated that it would not deny companies the payments where the business had been incorporated to take advantage of other tax breaks, for example, where the directors take dividend payments instead of salary to reduce NIC costs.

However, HMRC has announced that it will now be interpreting the rules strictly, and that it would deny the payments to any company where it considers that the company was formed to obtain "an advantage in relation to income tax, corporation tax or national insurance contributions".

"The way this announcement is worded, stating that HMRC 'will withdraw or prevent payment' of the incentive, suggests that payments already made will be clawed back," observed Peter Penneycard, National Director of Tax at PKF.

"In the Pre-Budget Report the Treasury announced that it would continue to look for ways to attack 'tax-motivated incorporation' by small businesses but few expected such a retrospective and petty attack on small companies who are simply using the tax law to their advantage."

"If the Government does not like the tax laws that govern small companies then it should change them – not make petty attacks that move the goalposts after the match has started. Few small business trust HMRC as it is: this sort of announcement is hardly likely to encourage them to cooperate with HMRC in the future," concluded Penneycard.

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