Press Release - Helping newly registered businesses meet their
tax obligations
6 December 2006
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. A report from the National Audit Office today puts
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.
HM Revenue and Customs was formed in 2005 and is currently
developing a new strategy for the help it provides to all types of
businesses. It aims to make it as easy as possible for businesses
to comply by providing simple processes for registering; accessible
and easy to understand guidance; and forms that are straightforward
to complete. It provides a wide range of help through its website,
printed guidance, telephone helplines, workshops and seminars.
Our work with the Department found that the proportion of new
businesses filing their tax returns on time is lower than for the
business population as a whole. 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 Department’s initiatives to increase the numbers filing
returns and paying their taxes on time have met with some success.
It does nevertheless need a better understanding of the track
record of businesses in complying, the types of help that improve
compliance and the cost-effectiveness of that help.
The NAO has drawn up a short list of recommendations which could
improve the compliance of new businesses, including some which
could be implemented quickly and at low cost, and others which
would require more substantial resources but could bring
significant long-term benefits.
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 http://www.businesslink.gov.uk/.
It could also work more closely with other organisations, such as
tax agents, Business Link 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, there would be benefits for the Department
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. It would however take
some time to introduce and involve significant costs.
Sir John Bourn, head of the National Audit Office, said
today:
"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."
Notes for Editors
- Around 700,000 new businesses start up each year. They have to
register with HM Revenue and Customs for different taxes as they
become liable to pay them. When they set up they become liable for
Income Tax or Corporation Tax. As they take on employees, they will
need to pay PAYE and, if their turnover exceeds £61,000, they
become liable for VAT. The Department requires them to register for
most taxes separately. This leads to around 1.2 million new tax
registration applications a year.
- Press notices and reports are available from the date of
publication on the NAO website, which is at www.nao.org.uk. Hard
copies can be obtained from The Stationery Office on 0845 702
3474.
- The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office which employs some 850 staff. He
and the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 66/06
All enquiries to Neil Gadhok, NAO Press Office:
Tel: 020 7798 7020
Mobile: 07796 940 746