The same mistakes over again

Go back to the Budget a few short weeks ago. Peppered throughout chancellor Gordon Brown’s speech is the claim that his proposals will encourage enterprise. ‘The more enterprising Britain is, the more wealth we create … We will champion the needs of small business … So in a better deal for Britain that puts work, enterprise and families first …’ and so on. All good stuff that gave the distinct impression that entrepreneurs and small businesses were valued.

Now wind the clock forward to early April and the front page of Accountancy Age: ‘Revenue imposes penalty for working family tax credit errors’ said the sub-heading, and the story goes on to tell those who just a few weeks ago were hearing how Gordon Brown understands business – especially small business – that employers will face fines of up to #3,000 for mistakes in administering the new system for working family tax credits.

This story has strong echoes of the stories this paper carried in the 1980s when Customs & Excise handed down fines to businesses for innocent errors in their VAT return.

Millions must have gone into Treasury coffers for mistakes by companies trying to fight their way through ridiculously complex legislation. Now it looks like the Inland Revenue has decided to use some of the same techniques.

First the Revenue gets business to do its dirty work for it. Then it imposes swingeing fines on those firms that don’t get it 100% right first time, every time. According to the Chantrey Vellacott Business Regulation Index there is now almost 20% more government administration burden on business than there was in May 1997. This move will add a few more percentage points.

No doubt this regulatory regime will be dressed up as necessary to ensure fraudsters are stopped. They won’t be. But plenty of honest businesses will be damaged. Firms foolishly thought they were in business to create wealth, but instead find themselves wasting hours of senior management time or paying out a large proportion of their profits to professional advisers.

Revenue chairman Nick Montagu reassured MPs the penalties would be administered with a light touch. Without wishing to be rude to Mr Montagu, such a promise is no more than a poor joke.

Gordon Brown and other politicians don’t seem to realise small businesses will simply not take on employees if government makes it so difficult – whatever the headline rate of corporation tax or the platitudes uttered.

It is tempting to call the penalty system for the WFTC to be scrapped.

But such a call would probably be almost as much a waste of effort as politicians pretending they want to encourage enterprise.

Peter Williams is a chartered accountant and editor of Electronic Finance

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