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Is the government’s work on tax compliance penalising the wrong people?

01 / 05 / 2013

It seems like one particularly large area of regulation that businesses in the UK seem to be going wrong with is with tax compliance.

Tax avoidance has been a big subject in government recently, as new rules have been introduced to crack down on schemes and accountancy firms have come under fire for their work with wealthy individuals.

Last year’s revelation that Starbucks, Amazon and Google were not paying as high taxes as it was thought they should has brought the fear of tax avoidance into the limelight.

The Public Accounts Committee, a Parliamentary group that has overseen tax in the UK, has been highly critical of the way that tax compliance is being handled in the UK.

But HM Revenue and Customs (HMRC) has not been helping the situation, particularly where smaller businesses and contractors are concerned.

Recently it overhauled the Pay As You Earn (PAYE) system and unveiled Real Time Information (RTI).

This meant that businesses would have to contact HMRC every time they paid an employee.

They were instructed to update their software to adapt to the changes.

Yet only a few months before some businesses were not even aware of these changes.

Crunch Accounting revealed at the start of February that 46 per cent of small to medium-sized businesses were aware of the change to RTI and only 19 per cent were ready for the change.

The government is also trying to stop contractors in particular from avoiding taxes by unveiling the General Anti Abuse Rule.

This aims to crack down on tax avoidance schemes concerning income tax, stamp duty, capital gains tax and corporation tax, among others.

Perhaps the message here is that, while tax avoidance is a problem, the government may be targeting the wrong sized corporations.

At the end of the day, it is widely agreed that Google  should have paid more than £6 million in corporation tax last year.

Yet the company was still able to say that its tax system was legal. The company’s executive chairman, Eric Schmidt, openly admitted that Google had used tax incentives in the UK to its advantage and even that he was proud of its system.

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