Taxing businesses is a taxing business

By Jason Piper, technical officer, ACCA

Imagine that you have been asked to write a set of operating instructions for a pedalo user at your local boating lake, to get from one side to the other. It’ll probably be a fairly brief document, maybe a side of A4 at most, including any instructions on how to steer or avoid collisions. You could probably even fit in some helpful hints on maintenance and user safety without getting too complicated.

Now, what if someone asked you to perform the same task for the entire Cunard liner fleet? (Well, except they’ll be crossing the Atlantic rather than your local boating lake. But the principle is the same.) You’d need operating manuals for the engines, details on how to cast off from the harbourside, probably how to engage tug boats and pilots… plus of course all the ancillaries; galleys, lifeboats, cinemas… it’s going to take more than a single side of A4, even if you write really, really small.

Now, consider the difference between your window cleaner (the man with the bucket, the cloth and the mobile phone) and BP (the multinational energy company with the oil refineries, the forecourt shops and the treasury team managing their international cashflows and banking). In terms of the broad analogy, both BP and the window cleaner are businesses, out to make money, in the same way that the pedalo and the cruise liner are ways to get from A to B without wet feet. And the business operating manual for each would be about as much use to the other as in the first example.

So why when it comes to tax do we insist on telling the pedalo user (small business) to look at the volumes of guidance for the big fleet (the UK taxes acts and supporting secondary legislation in all their 10,000 page glory), with the (not very) reassuring comment that it’s not all directly relevant? Telling the window cleaner that his purchase of a new ladder will be covered under the Capital Allowances Act 2001 (Section 51A)* is about as much use as telling the pedalo user to pass ‘port to port’; it’s accurate, but it’s hardly user friendly.

We need to look seriously at the ideas for simplification and deregulation that are on the authorities’ agendas, both at domestic and EU level, and think about how they can work together to improve the model for the smallest businesses, ‘subsistence businesses’ if you like, so that they can produce as much as possible with as low an administrative burden as possible, to the benefit of both their owners and the wider economy. That may mean sacrificing the sacred cow (or great white elephant?) of a unified system of business taxation, but if the ultimate trade-off is that the vast engine of micro-business can spin more freely, even with the drag of learning the extra rules for those who do decide to grow and migrate onto the full system, then it has to be worth exploring properly.

*Update: I went back to double-check the reference on this, only to discover the online version has only been updated for the 2002 Finance Act and not since. There are however, 'outstanding changes' yet to be made. Helpful. If you know the jargon you can find extra help in the HMRC manual, although I'm not sure how many small businesses have the time or know-how to do so!

Comments

[SKN]

This is a very interesting article. I agree that tax needs to be simplified. All the red tape is stifling small businesses.

Small business needs to be helped where possible to create employment and help the economy to get back on its feet.