Taxation Analysis - Who cares about a small business.
Gorge Fabrications Limited is a structural steel sub-contracting company employing 15 people – although sadly how much longer it will do so is a matter of conjecture. Why? Because it has been refused a sub-contractors tax certificate. While such a refusal for a sole trader is a nuisance it is unlikely to be too damaging. But for a company like Gorge Fabrications which has to pay its 15 staff regularly, it is likely to be a disaster. No business can easily have 23% (or even the 18% that will apply from 6 April next) taken out of its cashflow. So what has Gorge Fabrications done that is so wicked that its 15 staff deserve to be consigned to the scrap heap in spite of being part of Blair’s caring Britain and Brown’s full employment society? It suffered a substantial bad debt in 1996. Surely that can’t be all? Well, yes and no. As a result it had to do a company voluntary arrangement under which the Revenue was only paid #31,073 of the #34,000 it was owed. So, wouldn’t anyone be deliriously happy at getting 91% of the money it is owed out of an insolvency? Apparently not the Inland Revenue. As Gorge Fabrications has now learned to its cost, it can be very vindictive if it isn’t paid to the last penny. But didn’t Dawn Primarolo assure parliament last year that the Revenue does not have a policy of opposing CVAs where it is not paid in full? Yes, she did, but it certainly opposed this one even though it only stood to lose #2,927. And parliament seems easily fobbed off by ministerial statements. MPs seem unimpressed by the old saying that actions speak louder than words; they are always accepting assurances from ministers that seem to bear little relationship to reality. So the Revenue is being unreasonable? I’m not sure. I think that it may be what parliament intended – not this parliament, I hasten to add, but the 1975 parliament under the last Labour Government. It enacted that a company could not have a tax exemption certificate unless it had ‘complied with all obligations imposed on it under the Tax Acts’. Clearly in 1996 the company had an obligation to pay #34,000 and only paid 91% of it, albeit that it was because the insolvency laws prevented it paying the balance after the CVA. Denis Healey did give the Revenue power to waive this condition, but only if the failure to comply is ‘minor and technical’. In the Gorge Fabrications case it is certainly minor but I would not myself have thought it technical. Accordingly the Revenue seems to be doing only what Lord Healey demanded that it does. And of course it is not only Lord Healey. Successive parliaments could have given the Revenue a power to act reasonably where the failure was due to an unavoidable misfortune – as is the case with Gorge Fabrications. But all later parliaments have either thought Lord Healey’s prohibition acceptable or couldn’t be bothered to do anything about it. In fact, after its own fashion, the Revenue tried to stretch this wording. It regarded Gorge Fabrications’ failure to pay the remaining #2,927 as technical but pointed out that Lord Healey further circumscribed its discretion by saying that before it could ignore such a failure it had to be ‘satisfied’ that the company would meet all its future tax obligations. That seems a virtually impossible test to satisfy, a political sap towards a pretence of fairness. The Revenue booklet IR40 lays down a Revenue-made rule that if insolvency proceedings include any unpaid tax in the prior three years (which Gorge Fabrications fell foul of) it would refuse a certificate. The learned Special Commissioner to which the company appealed considered that as ‘the Inspector … has listened to what the company has to say but has nevertheless regarded himself as obliged to follow the guidelines in IR40’ he has exercised his discretion. I find it hard to understand that merely listening with closed, albeit sympathetic, ears and then following the party line is sufficient. Of course, as Gorge Fabrications is only a small business after all, who really cares about whether or not 15 workers are unfairly thrown on to the scrap heap?