The Revenue has recently issued a consultation document Starting up in Business. This ought to be required reading for all small practitioners.
You can download it from the web or obtain a copy from Fatima Chowhury, Inland Revenue, Room 439, 22 Kingsway, London WC2B 6NR. Comments are invited by 11 December. Please comment. And if you care to send a copy of your comments to me at the ICAEW Tax Faculty, P O Box 433, Chartered Accountants’ Hall, Moorgate Place, London EC2P 2BJ, I would appreciate it.
Why do I think it so important that as many people as possible respond to these proposals? Because I do not think the author understands the small business facts of life.
That is a bit unfair. The Revenue has been told to implement the Grabiner report and this proposal derives from that, so I should rather say that I do not believe Lord Grabiner understands the small business facts of life.
And as an eminent QC I do not expect him to, but wish he hadn’t led Gordon Brown to believe that he did.
The proposal is that from January 2001 the Revenue ‘will introduce simpler procedures to encourage new business to tell the Inland Revenue as soon as it starts up’. Surely there is nothing wrong with that?
Yes and no. I doubt a new business can give much useful information to the Revenue and think giving information that proves incorrect, as in some areas is almost inevitable, actually creates more problems than it solves. I also doubt it helps anyone for the Revenue to be chasing proprietors of new businesses who are struggling to get off the ground and probably owe no tax.
What really concerns me is on page 10 of the document; ‘We therefore intend to under-pin the requirement to notify the Inland Revenue by imposing a penalty on those who nevertheless choose to default.’
The proposed penalty is #100 and the Revenue is seeking comments on whether it should impose this if notification is not made within one month of starting in business or whether they should be ultra-generous and allow three months.
Who can tell me when a hobby turns into a business? Who can tell me when an attempt to set up in business becomes a real business? Who can tell me what is the commencement date of many businesses?
For example, if I open a restaurant, is it when I open the doors or is it when I sell the first meal, is it when I buy the initial lot of ingredients, or when I start advertising? This is a rhetorical question. It could be any of those, or earlier, depending on facts.
Yet if the entrepreneur does not identify the right date he will start his business life with a tax penalty.
Many people don’t even decide to set up in business. It just happens.
If a person plays a guitar for friends and someone asks him to help out in a band for a night and in return he will get free drinks, is he in business? What if it happens a couple of times? What if the third time he is given a tenner as well?
If after six months he is playing with the band once a month I think he is probably in business. I think in retrospect I could probably work out when his business started. But there is no way I could do that prospectively.
And remember, we are not necessarily talking about sophisticated people.
We may well be talking about a 16 year old school drop-out who has drifted into his business without any thoughts that that is what he had done.
As a citizen do you think it right to impose impossible burdens on such persons? I know I don’t.
I do agree it is right that people who ‘choose to default’ should be penalised. I also realise that Brown and Lord Grabiner probably think a person who wants to be self-employed should have to go to college and learn about business first.
He needs to raise capital. He needs to understand bureaucracy. It is crazy for someone to think he can start a successful business without training. A person who does not do these things has obviously ‘chosen to default’ and deserves to be penalised. Except isn’t that how Sir Richard Branson started?
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